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UNIVERSITY  OF  CALIFORNIA 
AT  LOS  ANGELES 


GIFT   OF   CAPT.   AND    MRS. 
PAUL  MCBRIDE  PERIGORD 


:^Y  of  CAUF(>KNi« 
AT 
A.)^  ANQEL?:S 
LIBTIARY 


MORALS  IN  MODERN  BUSINESS 


MORALS    IN 
MODERN    BUSINESS 


ADDRESSES  DELIVERED  IN  THE  PAGE 
LECTURE  SERIES,  1908,  BEFORE  THE 
SENIOR  CLASS  OF  THE  SHEFFIELD 
SCIENTIFIC  SCHOOL,  YALE  UNIVERSITY 


NEW   HAVEN,  CONN. 

YALE   UNIVERSITY   PRESS 

LONDON,  TORONTO.  AND  MELBOURNE 

HENRY   FROWDE 
1909 


144010 


Copyright,  1909,  by 
Yale  University  Press 


Entered  at  Stationers'  Hall,  Lt»id<m 


Printed  in  the  United  Stales 


Y\Z 

PUBLISHERS'  NOTE 

In  presenting  this,  the  first  voKime  of  the  "Page 
Lecture  Series,"  it  seems  fitting  to  preface  the  addresses 
with  a  brief  statement  concerning  the  course  inaugu- 
rated at  the  Sheffield  Scientific  School  of  Yale  Univer- 
sity in  1908. 

For  some  time  prior  to  that  date  the  authorities  of 
the  Sheffield  Scientific  School  had  been  considering  the 
possibiUty  of  a  course  of  five  lectures  dealing  with  the 
question  of  right  conduct  in  business  matters,  to  be 
given  to  the  members  of  the  Senior  Class  toward  the 
end  of  their  college  year.  While  these  addresses  were 
to  be  in  a  sense  a  prescribed  study  for  members  of  the 
Senior  Class,  it  was  intended  that  the  course  should  not 
be  restricted  to  them  but  should  be  open  to  all  mem- 
bers of  the  University  who  might  desire  to  attend. 
Through  the  generosity  of  Mr.  Edward  D.  Page,  of  New 
York  City,  a  graduate  of  the  Sheffield  Scientific  School 
in  the  Class  of  1875,  this  course,  now  named  for  the 
founder,  was  established  in  the  summer  of  1907;  and 
in  the  spring  of  1908  the  first  lectures  in  the  series  were 
delivered  by  Messrs.  George  W.  Alger,  Henry  Holt, 
A.  Barton  Hepburn,  Edward  W.  Bemis,  and  James 
McKeen,  with  an  introductory  address  by  Mr.  Page 
himself. 

Grateful  acknowledgment  is  made  to  each  of  these 
gentlemen  for  his  assistance  in  the  preparation  of  this 


vi  PUBLISHERS'  NOTE 

volume,  to  Director  Chittenden  of  the  Sheffield  Scien- 
tific School,  for  advice  and  suggestions,  and  to  Mr. 
Ripley  Hitchcock,  of  New  York  City,  for  the  intro- 
duction he  has  contributed.  Thanks  are  also  due  to 
the  editors  of  the  Atlantic  Monthly  for  permission  to 
reprint  in  the  present  collection  Mr.  Henry  Holt's  ad- 
dress on  "Competition." 


INTRODUCTION 

The  aim  of  this  book  is  to  afford  some  candid  and 
practical  inquiry  into  the  conduct  of  modern  business 
on  what  may  be  termed  the  moral  side.  Is  modern 
business  frequently  dishonest?  If  so,  why?  Is  modern 
business  in  such  a  stage  of  flux  and  change  that  its 
standards  are  not  yet  readjusted?  If  so,  may  not  the 
air  be  cleared  by  a  frank  attempt  to  formulate  in  some 
measure  the  standards  of  the  new  order? 

That  there  is  occasion  for  taking  careful  bearings  has 
been  made  evident  repeatedly  in  the  course  of  the  last 
few  years.  The  great  industrial  expansion,  the  con- 
stant aggregation  of  capital  into  vast  corporations,  and 
the  complex  questions  arising  in  regard  to  transporta- 
tion, have  been  accompanied  by  new  conditions.  There 
has  been  wrong-doing  and  suffering,  as  happens  always 
in  any  period  of  sudden  commercial  development. 
There  have  been  cases  where  materialism,  the  money 
lust,  has  violated  our  inherited  principles  and  teachings. 
Close  upon  this  unscrupulousness  have  followed  the 
critics,  the  so-called  "muck-rakers,"  if  you  will,  who 
have  said  in  their  haste  that  all  men  are  liars,  and  after 
them  again  followed  other  extremists  who  have  en- 
deavored to  gild  our  material  environment  with  the 
svmshine  of  vague  optimism. 

These  superficial  aspects  of  recent  phenomena  are 
familiar  to  us  all.     But  is  it  not  worth  while  to  go 


viii  INTRODUCTION 

deeper?  Are  there  not  experiences  of  the  past  by 
which  we  may  take  our  bearings?  Without  denuncia- 
tion or  palUation,  will  not  an  inquiry  into  modern 
business  conditions  lead  to  the  conclusion  that  the 
transformation  requires  rules  of  guidance  which  must 
be  formulated  in  different  terms?  We  are  compelled 
to  recognize  that  acts  which  were  legally  right  a  genera- 
tion ago  are  legally  wrong  to-day.  Is  it  not  a  first  duty 
for  every  citizen  to  consider  these  changes  and  to  take 
thought  as  to  his  rules  of  conduct? 

These  are  some  of  the  questions  which  are  answered 
in  this  book  by  men  of  lai'ge  experience  in  various  de- 
partments of  the  business  world.  It  is  a  book  by  busi- 
ness men  deaUng  with  the  morals  of  the  new  business. 
It  is  not  an  attempt  to  apply  to  these  practical  condi- 
tions the  teachings  of  ethics  as  commonly  understood, 
or  of  abstract  philosophy,  or  any  esoteric  lessons.  The 
authors  first  prepared  these  chapters  for  delivery  as 
lectures  at  the  Sheffield  Scientific  School  of  Yale  Uni- 
versity in  1908.  No  such  course  apparently  had  been 
delivered  at  any  college  before,  and  the  keen  interest 
which  was  shown  seemed  to  prove  that  the  time  has 
come  for  concrete  and  dispassionate  consideration  of 
our  relations  to  fellow-workers  in  the  busmess  world, 
to  the  community  and  to  ourselves.  As  a  contribution 
toward  the  happier  and  more  settled  conditions  which 
full  realization  of  these  relations  would  effect,  these 
lectures  revised  for  pubfication  in  book  form  are  now 

offered  to  the  pubhc.  -r,  tt 

^  Ripley  Hitchcock. 

February,  1909. 


CONTENTS 

PAGE 

INTRODUCTION Ripky  Hitchcock  vii 

THE  MORALS  OF  TRADE  IN  THE 

MAKING Edward  D.  Page  1 

PRODUCTION George  W.  Alger  23 

COMPETITION Henry  HoU  47 

CREDIT    AND    BANKING    .      .      ,      A.  Barton  Hepburn       74 

PUBLIC    SERVICE Edward  W.  Bemis       102 

CORPORATE  AND  OTHER  TRUSTS     James  McKeen  129 

SYLLABI  OF  THE  LECTURES 149-162 


IX 


THE  MORALS  OF  TRADE  IN  THE 
MAKING 

BY   EDWARD   D.    PAGE 

Success  in  obtaining  correct  results  from  the  dis- 
cussion of  any  subject,  depends 

(1)  On  a  clear  conception  of  the  questions  involved. 

(2)  On  a  correct  understanding  of  the  terms  employed, 
and 

(3)  On  the  freedom  of  the  mind  from  prejudice;  that 
is  to  say  from  preconceived  opinions  incorrectly  formed. 

The  questions  before  us  are: 

(1)  Upon  what  foundation  rests  the  general  impres- 
sion expressed  in  the  innuendo  "CommerciaUsm"  — as 
appUed  to  a  general  lack  of  integrity  in  the  contact  of 
business  and  social  or  poUtical  Ufe  —  that  the  pursuit 
of  commercial  affairs  tends  to  a  blunting  of  the  sense  of 
honesty  in  dealing  with  our  fellow  men? 

(2)  In  what  degree  are  the  operations  of  modern 
business  conducted  in  accordance  with  or  in  disregard 
of  moral  principle?  Are  immoral  practices  common  or 
general  in  business  life,  and  are  they  essential  to  busi- 
ness success? 

(3)  What  are  the  causes  of  immoral  practices  in  the 
conduct  of  business? 

(4)  Does  there  exist  an  ethical  principle  which  will 

1 


2     MORALS  OF  TRADE  IN  THE  MAKING 

serve  as  the  foundation  for  a  coherent  body  of  ethical 
thought,  by  which  business  morals  may  be  guided? 

In  stating  these  questions  and  in  their  futui-e  dis- 
cussion, a  few  words  are  used  which  will  have  to  be 
defined : 

Business:  human  activity  with  respect  to  the  exchange 
of  services,  commodities  or  money. 

Morality:  the  rule  of  right  conduct  commonly  accepted 
by  the  most  reasonable  and  least  selfish  part  of  the 
community  —  social  sentiment  as  expressed  by  its 
acknowledged  leaders. 

Ethics:  the  science  of  right  conduct;  that  is,  the  body 
of  principle  on  which  morality  is  based. 

Honesty:  conduct  in  business  transactions  in  con- 
formity with  the  conventional  standards  of  duty  and 
obhgation  set  by  the  social  sentiment  of  any  given  time 
or  place. 

Honor:  principles  of  action  in  conformity  with  the 
highest  standards  of  duty  and  obhgation  prevalent  at 
any  given  time  and  place. 

Law:  a  rule  of  action  established  by  recognized 
authority  to  enforce  justice  and  to  direct  duty. 

Society:  the  collective  body  of  persons  composing  a 
community. 

If  we  have  satisfied  ourselves  as  to  the  subjects  under 
discussion  and  as  to  the  meaning  of  the  terms  used 
therem,  we  may  next  proceed  to  a  more  detailed  con- 
sideration of  the  biases  or  prejudices  with  which  the 
question  is  commonly  approached. 

To  judge  from  the  public  expression  of  current  opinion 


MORALS  OF  TRADE  IN  THE  MAKING     3 

it  would  appear  that  business  operations  generally  were 
conducted  with  a  fine  disregard  of  moral  principle,  as 
if  business  men  generally  needed  the  drastic  coercion 
of  the  Statute  Law  to  compel  them  from  "doing"  those 
with  whom  they  dealt,  and  even  that  possibly  business 
successes  generally  were  conditioned  upon  taking 
advantage  of  every  opportunity  to  cheat,  deceive,  and 
delude  those  with  whom  transactions  were  conducted. 

Sitting  by  the  Club  table,  in  the  intimate  discoui'se 
which  follows  that  certain  relaxation  of  reserve  pro- 
moted by  good  dining,  I  once  heard  the  expression  of  a 
noted  lawyer  that  in  his  judgment  the  corruption  of 
modern  commerce  was  appalling;  that  it  was  the  rule 
for  business  men  to  be  either  cheating  on  the  sly,  or 
devising  plans  to  follow  such  open  dishonesty  as  could 
be  practiced  without  incurring  the  penalties  of  the 
Law.  "For,"  said  he,  "my  office  is  crowded  with  those 
who  either  want  me  to  get  them  out  of  the  consequences 
of  their  misdeeds,  or  to  tell  them  how  far  they  can  go 
along  crooked  fines  without  getting  into  jail."  Later, 
at  the  fireside,  a  careworn  physician,  in  response  to  an 
inquiry  as  to  the  causes  of  his  attitude  of  dejection, 
said,  "I'm  blue  because  my  work  bears  in  upon  me  the 
conviction  that  a  world  where  not  more  than  one  man 
in  ten  is  even  reasonably  healthy  can  never  be  a  happy 
one." 

These  opinions  are  typical  instances  of  what  may  be 
termed  the  professional  bias.  The  second  of  them 
involves  an  obvious  faUacy  to  aU  minds  not  concentrated 
upon  problems  of  disease  and  death.    That  we  are  a 


4     MORALS  OF  TRADE  IN  THE  MAKING 

race  of  almost  hopeless  invalids  is  so  conclusively  con- 
tradicted by  our  dependence  upon  its  contrary  in  the 
ordering  of  our  daily  Uves  that  it  suggests  like  skepti- 
cism with  regard  to  the  opinion  fii'st  expressed  as  to  the 
moral  health  of  the  business  world. 

We  may  perhaps  ask  ourselves  a  few  questions  about 
that  condition. 

Is  our  commerce,  om*  finance,  so  morally  rotten; 
honeycombed  with  dishonesty  and  cunning  fraud? 
Does  the  intending  purchaser,  whether  at  wholesale 
or  at  retail,  expect  to  be  defrauded  of  his  money  when 
he  approaches  the  store  at  which  he  is  intending  to 
trade?  Is  his  ordinary  attitude,  after  he  has  found  out 
the  nature  of  the  article  which  he  has  bought,  that  of 
one  who  will  never  buy  again  of  that  establislmrient; 
or  of  a  pleased  customer,  who  is  likely  to  shop  again 
with  the  seller,  and  to  recommend  his  wares? 

How  long  would  any  of  our  great  producers  remain 
in  business  could  he  not  depend  upon  a  continuous 
demand  for  his  product  by  those  who  felt  they  had  not 
been  deceived  in  the  goods  they  had  previously  bought? 
And  how  would  it  be  possible  for  distributmg  houses  to 
keep  on  doing  business  with  the  same  people,  for  ten, 
twenty,  or  may  be  forty  years,  unless  fair  and  honorable 
dealing  were  so  customary  that  it  could  be  taken  for 
granted?  Is  it  not  a  matter  of  common  knowledge, 
founded  on  common  sense,  that  other  things  being 
equal,  men  will  prefer  to  trade  with  those  who  treat 
them  squarely  and  will  avoid  those  who  have  cheated 
them? 


MORALS  OF  TRADE  IN  THE  MAKING     5 

Insurance  against  dishonesty  is  as  common  as  against 
any  other  catastrophe;  the  companies  stake  their  busi-  ^ 

ness  upon  the  high  estimate  that  their  risks  are  98  per 
cent  honest  and  the  profits  of  their  business  show  tliat 
this  is  true.  Of  credits  extended  by  commercial  houses 
the  overwhelming  majority  are  paid  as  a  matter  of 
course;  the  losses  by  bad  debts  would  be  enormous  at 
3  per  cent  of  the  transactions;  their  common  average 
range  is  from  ^o  ^o  |  of  one  per  cent ;  and  the  premiums 
of  the  credit  insurance  companies  are  based  on  this 
experience. 

The  professional  bias  is  the  mistaken  notion  con- 
ceived by  one  whose  absorption  in  a  part  of  a  subject 
has  prevented  that  knowledge  of  the  whole  upon  which 
depends,  as  Herbert  Spencer  justly  observes,  a  correct 
understanding  even  of  the  part.  Wliile  the  pathological 
view  may  be  very  important  to  a  just  interpretation  of 
any  physical  or  moral  fact,  nothing  but  error  will  result 
if  it  be  substituted  for  a  knowledge  of  the  normal  or 
physiological  conditions  involved  in  the  functions  of 
health. 

A  more  widely  circulated  misconception  of  mercantile 
morals  is  that  disseminated  by  the  Press.  Modern 
journaHsm,  in  its  effort  to  expand  circulation,  concerns 
itself  mostly  with  the  exploitation  of  the  exceptional, 
publishes  by  preference  all  deviations  from  the  accepted 
moral  code,  and  relegates  into  the  obscurity  of  the  un- 
interesting the  humdrum  occurrences  which  as  actual 
experience  most  definitely  shows,  constitute  nineteen- 
twentieths  or  more   of   life.     The  average  managing 


6     MORALS  OF  TRADE  IN  THE  MAKING 

editor  realizes  that  plain  history  has  few  readers,  while 
the  romance  which  sheds  a  high  light  upon  the  unusual 
or  unconventional  in  action  or  personality  makes  an 
immediate  appeal  to  the  million.  Too  often  the  reader 
forgets  that  in  the  race  for  circulation  the  press  has  in 
large  measure  degenerated  into  a  purveyor  of  fiction 
by  concentrating  its  attention  upon  the  exceptional 
too  often  colored  by  fancy,  and  in  the  large  is  presenting 
a  picture  of  Ufe  so  far  misproportioned  and  misrepre- 
sented as  to  be  mostly  unreal.  Deceptive  as  this  prac- 
tice must  necessarily  be  to  the  imeducated,  it  should 
not  become  the  basis  for  the  opinion  of  the  educated 
man,  who  too  often  makes  use  of  "newspaper  facts" 
for  the  exploitation  of  sensational  opinions,  which  the 
slightest  analysis  should  show  to  be  false.  When 
college  presidents  can  lend  their  sanction  to  the  popular 
impression,  thus  lightly  created,  that  "Corporations" 
and  "Business"  —  which  terms,  if  they  mean  anything, 
mean  all,  or  the  large  majority  of  Corporations,  and  of 
business  men  —  are  organized  for  the  plunder  of  the 
rest  of  the  community,^  they  must  of  needs  forget  the 
obligations  of  self  restraint  in  utterance  and  of  accuracy 
of  statement  which  the  man  of  education  owes  to  those 
to  whom  he  speaks.  The  flimsiest  consideration  of  the 
facts  involved  should  be  sufficient  to  halt  a  trained 


*  "  The  corporation  problem  resembles  a  society  of  burglars, 
legally  organized  to  plunder,  against  whom  criminal  proceedings 
result  only  in  an  indictment,  or  a  fine,  which  the  plimdered  them- 
selves must  pay."  —  Interview  given  by  President  Woodrow  Wilson, 
N.  Y.  Times,  Sunday,  November  24,  1907. 


MORALS  OF  TRADE  IN  THE  MAKING     7 

mind  before  the  expression  of  such  an  opinion,  even 
if  it  be  true  as  it  undoubtedly  is,  that  there  are  some 
branches  of  business  in  which  the  standards  of  honesty 
leave  much  to  be  desired. 

A  third  variety  of  bias  is  associated  with  a  popular 
prejudice  against  corporations  which  in  many  ways  is 
well  founded.  It  arises  from  four  phases  of  corporate 
action,  each  of  which  has  been  distinctly  anti-social; 

(1)  Unreasonable  and  arbitrary  practices  of  the  Rail- 
roads in  deaUng  with  their  customers,  such  as 

(a)  Rebates  to  favored  individuals. 

(6)  Practices  such  as  those  described  in  Norris's 
"Octopus"  which  have  justly  incensed  the  victims  of 
uncontrolled  monopoly. 

(c)  Arbitrary  attitude  of  the  Railroads  with  respect 
to  the  service  of  the  communities  whose  sole  means 
of  transportation  they  control. 

(2)  The  secret  corruption  of  State  and  Municipal 
Legislatures  and  of  public  officials  at  some  time  in  their 
history  by  nearly  every  PubUc  Service  and  Railroad 
Corporation  in  the  land. 

(3)  The  avoidance  of  responsibility  for  wrong  doing, 
by  reason  of  the  limitation  of  pecuniary  and  penal 
liability  on  the  part  of  officers  and  directors  of  many 
corporate  enterprises,  especially  of  the  more  important 
and  impressive  in  size. 

(4)  The  organization  of  a  few  corporate  enterprises 
by  professional  wrong-doers  under  the  cloak  of  the 
limited  liability  so  afforded  to  perpetrate  deliberate 
fraud. 


8     MORALS  OF  TRADE  IN  THE  MAKING 

On  the  other  hand  it  must  be  urged  that  with  the 
present  fashion  of  transforming  all  kinds  of  business 
into  corporate  form,  the  guilty  among  existing  corpora- 
tions form  in  number  but  an  infinitesimal  fraction  of 
the  whole;  and  the  indiscriminate  censure  of  all  cor- 
porations, growing  out  of  the  prejudices  estabUshed  by 
the  three  forms  of  bias  which  have  been  alluded  to 
above,  can  in  no  measure  be  justified  by  the  facts. 

It  is  far  from  my  desire  to  deny,  extenuate  or  under- 
estimate the  immoral  practices  which  have  existed  or 
still  exist  in  commercial  hfe,  in  corporate  practice  or  in 
trust  management.  But  proportions  must  be  correctly 
determined  before  we  can  either  recognize  and  study 
the  real  evils  involved,  or,  after  a  just  estimation  of 
their  prevalence  and  causes,  discuss  the  immediate 
effort  by  which  the  elements  detrimental  to  moral  wel- 
fare may  be  purged  from  commercial  hfe. 

Morahty  in  its  essence  is  the  conduct-standard  estab- 
lished by  the  general  opinion  of  the  community  as  to 
the  point  at  which  self-interest  should  be  subordinated 
to  the  interest  of  that  society  of  which  the  individual 
forms  a  part.  The  activities  of  the  individual  express 
themselves  in  his  conduct,  for  which  the  social  senti- 
ment therefore  is  supposed  to  provide  a  moral  guide. 
Unlike  the  Law  it  does  not,  in  our  present  state  of  civi- 
lization rest  except  in  small  part  upon  written  authority ; 
and  in  conformity  with  the  growth  and  increasing  com- 
plexity of  that  civihzation,  the  social  sentiment  upon 
which  morahty  rests  is  subject  to  Hke  growth  and 
change. 


MORALS  OF  TRADE  IN  THE  MAKING     9 

At  first  it  is  difficult  for  any  one  to  grasp  the  thought 
that  Morality,  which  until  a  comparatively  recent 
period  was  supposed  to  be  based  upon  the  Ten  Com- 
mandments and  similar  authoritative  commands,  is  by 
no  means  fixed  in  form,  but  is  subject  to  an  evolution 
corresponding  in  some  measure  to  the  evolution  of  our 
race,  or  of  our  civiUzation.  Students  of  History  are 
well  aware  that  the  standard  of  morals  varies  materially 
from  century  to  century,  and  from  place  to  place,  "Ask 
any  savage  which  is  worse,  to  steal  some  trifling  article, 
the  property  of  his  fellow  tribesman,  or  to  massacre  a 
family  of  the  neighboring  tribe.  He  will  as  surely 
answer  the  former  as  we  should  the  latter."  ^  In  the 
Homeric  literature,  the  deceitful  cunning  of  Ulysses 
appears  as  a  virtue  of  the  same  rank  with  the  prudence  of 
Nestor,  the  constancy  of  Hector,  and  the  gallantry  of 
Achilles.^  Theft  was  the  only  form  of  dishonesty 
recognized  by  the  early  Roman  Law.' 

In  space  as  well  as  time  is  apparent  the  same  condi- 
tion of  imequal  evolution  of  moral  standards,  and  even 
in  the  same  community  the  moral  ideals  of  one  group  of 
men  differ  radically  with  respect  to  certain  acts  from 
those  of  another.  Advertising  is  as  contrary  to  the 
ethics  of  the  medical  profession  as  it  is  approved  by 
the  laity,  and  while  scabbing  is  a  gross  immorality  to  the 
Trades  Unionist,  the  bulk  of  the  social  fabric  continues 

'Thompson  Seton's  "Natural  History  of  the  Ten  Command- 
ments." 

2  Maine,  "Ancient  Law,"  303. 


10  MORALS  OF  TRADE  IN  THE  MAKING 

to  regard  it  with  indifference.  The  recognition  of  moral 
notions  as  formed  by  social  sentiment,  as  subject  to 
change  and  progress,  and  as  a  phase  of  evolution,  is 
essential  to  a  correct  understanding  of  the  facts  with 
which  the  discussion  of  Business  Ethics  has  to  deal. 
In  the  process  of  evolution  the  decline  in  religious 
belief,  the  concentration  of  population  in  great  cities, 
their  connection  by  cheap  and  rapid  routes  of  transpor- 
tation and  the  extraordinary  progress  of  the  last  hun- 
dred years  in  manufactures  and  industry  fostered  both 
by  invention  and  by  novel  financial  de\dces,  have  com- 
bined together  not  only  to  disturb  men's  reverence  for 
the  old  time  authoritative  standards  of  moral  practice, 
heretofore  subject  only  to  the  influence  of  the  slowly 
moving  economic  progress  of  the  preceding  fourteen 
centuries,  but  to  create  as  the  material  of  moral  action 
a  whole  new  set  of  social  and  economic  forces  developing 
with  breathless  rapidity  —  the  changes  of  a  lifetime 
compressed  into  the  fluctuation  of  a  decade.  There 
indeed  you  have  a  series  of  factors  tending  to  demoraliza- 
tion. An  example  of  unequal  evolution  in  the  spheres 
of  economic  and  moral  development,  arising  at  the  very 
epoch  in  which  the  old  authoritative  standards  were  in 
process  of  decay! 

In  the  ethical  questions  mvolved  in  transportation 
we  have  begun  to  see  that  the  business  codes  of  the  day 
before  the  age  of  the  steam  cannot  cover  the  complex 
partnership  of  the  People  and  private  enterprise  as 
embodied  in  our  railway  system  —  a  joint  undertaking 
for  which  the  eminent  domain  of  the  State  furnishes 


MORALS  OF  TRADE  IN  THE  MAKING  11 

the  means  and  in  which  it  permits  a  monopoly,  but 
built  and  operated  by  individual  capital  and  abihty. 
Day  before  yesterday  we  see  the  industrial  welfare  of 
the  nation  in  large  measure  promoted  and  extended  by 
the  very  rate  concessions  which  to-day  cannot  fairly 
or  equitably  be  permitted  to  exist.  This  example  is 
one  only  of  a  large  class  of  newly  important  activities, 
the  exercise  of  which  have  been  turned  into  moral 
problems  by  the  great  growth  of  the  volume  and  com- 
plexity of  business  during  recent  years  —  problems 
whose  solution  has  lagged  behind  for  want  of  a  prompt 
and  definite  expression  of  social  judgment.  For,  in 
the  mad  race  for  riches,  busied  with  the  furtherance  of 
its  own  extraordinary  economic  development,  the  com- 
munity has  neglected  to  carry  on,  coincidently,  the 
presentation  and  determination  of  what  duties  and  what 
obligations  are  involved  in  the  conduct  arising  from 
that  development.  This  neglect  has  permitted  a  mar- 
gin of  business  competition  under  unethical  conditions 
and  according  to  unethical  standards;  the  financial 
results  of  which  may  be  seen  in  many  of  the  great  for- 
tunes, the  methods  of  whose  acquisition  are  obviously 
scandalous.  Worse  still,  our  statute  law  has  likewise 
developed  imequally  with  our  economic  evolution.  It 
often  permits,  and  not  infrequently  offers  inducement 
to  the  violation  of  the  moral  principles  which  are  already 
well  established  in  social  consciousness.  Our  existing 
laws  against  combinations;  those  governing  the  for- 
mation of  corporations,  the  levying  of  assessments  for 
personal  taxes,  and  the  collection  of  tariff  duties  —  to 


12  MORALS  OF  TRADE  IN  THE  MAKING 

mention  no  others  —  offer  inducements  for  the  violation 
of  the  moral  law  by  reason  of  the  unjust  economic  penal- 
ties which  fall  upon  the  businesses  which  obey  them  to 
the  letter,  and  tend  to  "make  decent  men  violators  of 
law  against  their  'wills  and  to  put  a  premium  on  the 
behavior  of  the  wilful  wrong  doer,"^  Couple  the  con- 
fusion produced  by  this  situation  with  the  opposite 
idea  that  Law  is  the  only  authoritative  expression  of 
the  social  moral  sense,  and  that  whatever  is  lawful  is 
hkewise  honest,  and  we  come  near  to  the  point  of  view 
of  those  wrongdoers  who  pursue  their  selfish  interests 
as  far  as  the  forms  of  Law  will  permit  and  violate  the 
provisions  of  any  statute  which  they  think  is  not  sup- 
ported by  the  public  sentiment  of  the  community  in 
which  they  live.  These  men  are  the  real  anarchists 
which  the  social  fabric  has  to  fear;  their  ability  and 
resources  give  them  a  power  many  fold  that  of  the 
weak  and  poverty-stricken  ''Reds."  It  is  the  social 
injustice  perpetrated  by  such  oppressors,  and  the  result- 
ing contempt  for  the  Law  under  whose  protection  they 
practice,  which  provokes  the  insurgent  anarcliist  to 
attempt  its  regulation  by  force  of  dynamite  and  arms. 
As  the  Law  stands  therefore  —  and  the  Law  always 
lags  behind  and  never  forestalls  the  moral  consciousness 
of  the  community  —  it  is  generally  impossible  to  punish 
these  social  wrongdoers,  these  practicing  anarchists, 
by  the  Law.  They  can,  nevertheless,  be  punished  by 
pubhc  opinion,  that  sentiment  which  as  Bryce  declares, 
even  our  legislators  seldom  dare  to  disregard.     To  the 

« Roosevelt,  Message,  Dec.  4,  1907. 


MORALS  OF  TRADE  IN  THE  MAKING  13 

intelligent  formation  of  that  public  opinion  should  be 
directed  the  thoughts  and  energies  of  those  to  whom 
aliberal  education  has  given  the  primary  elements  of  the 
power  of  social  leadership. 

In  the  analysis  of  the  mode  by  which  this  potential 
force  can  be  utilized  by  the  man  of  trained  mind  some 
distinctions  must  be  recognized.  It  may  be  pointed 
out  that  there  are  three  phases  of  evolution  (and  one  of 
devolution)  through  which  the  social  consciousness 
passes  in  recognizing  the  moral  quaUty  of  business  con- 
duct. 

First:  Social  Duties  recognized  by  the  few  but  dis- 
regarded by  the  many,  which  is  something  more  than 
conformity  to  the  conventional  standards  of  right 
action.  Tlie  principles  by  which  these  duties  are 
regulated  form  an  ideal  code,  "made  up  of  rules  which 
it  is  safer  to  disregard  than  to  deny";*  and  the  sentiment 
which  supports  them  is  that  of  Honor,  which  we  recog- 
nize as  a  rarer  and  higher  feeUng  than  that  of  mere 
honesty. 

A  second  and  a  lower  grade  of  principles  are  those 
which  may  be  grouped  together  under  the  term  Honesty; 
the  many  —  in  fact  the  bulk  of  the  community  — 
recognize  the  rules  based  thereon  as  expressing  the 
average  business  conduct  which  the  social  consciousness 
expects  and  enforces  by  public  opinion. 

The  third  phase  of  moral  evolution  begins  when  the 
community  seeks  a  more  definite  and  authoritative 
expression  of  social  sentiment  by  its  crystallization  into 

1  Hobhouse,  "Morals  in  Evolution,"  I,  27. 


14  MORALS  OF  TRADE  IN  THE  MAKING 

Law;  which  will  then  state  the  immoral  quality  of  an 
act  and  provide  for  it  a  definite  penalty. 

The  stage  of  devolution  is  reached  when  conduct 
formerly  found  contrary  to  the  social  welfare  has,  by 
force  of  changed  circumstances,  become  to  be  no  longer 
recognized  as  WTongful;  but  owing  to  the  unrespon- 
siveness of  written  law  to  pubUc  opinion,  it  is  still 
condemned  as  illegal.  The  continuance  of  the  legal 
condemnation  after  the  passing  of  the  sentiment  which 
inspired  it,  creates  a  confusion  as  to  the  moral  intention 
of  Society  which  is  almost  as  inimical  to  its  welfare  as 
the  existence  of  a  crime  which  the  law  does  not 
condemn. 

In  accordance  with  these  distinctions  we  may  classify 
doubtful  acts  as 

(a)  Dishonorable,  though  perhaps  not  dishonest. 

(6)  Dishonorable  and  dishonest,  though  not  il- 
legal. 

(c)  Dishonorable,  dishonest  and  illegal,  with  the  addi- 
tion of  another  class  of  conduct  which  is  illegal,  though 
not  partaking  of  any  immoral  quaUty,  other  than  the 
secondary  one  of  inspiring  contempt  for  Law. 

Similar  to  these  four  phases  of  subjective  moral  sen- 
timent, the  individual  objectively  in  his  attitude  toward 
society  instinctively  draws  a  line  of  demarcation  between 
three  more  or  less  clearly  defined  social  strata  or  classes, 
toward  whom  he  feels  different  degrees  of  intensity  of 
moral  obligation. 

Most  intensely  of  all  he  feels  a  sense  of  duty  toward 
his  family,  his  kinsmen  and  his  friends  —  those  with 


MORALS  OF  TRADE  IN   THE  MAKING  15 

"whom  he  comes  most  constantly  in  contact  and  who 
are  bound  to  him  by  ties  of  mutual  service  and  for- 
bearance. 

In  a  second  place  to  these  he  puts  those  with  whom 
he  has  conmion  interests  and  common  dealings,  his 
social  acquaintances,  the  members  of  his  group,  trade 
or  profession,  or  of  his  trades  union  —  with  whom  he  is 
personally  acquainted  and  whose  favorable  opinion  he 
naturally  solicits  —  the  anthropological  analogy  of  the 
Tribe. 

Thirdly,  there  is  the  general  pubUc  or  persons  separated 
from  him  by  barriers  of  non-acquaintance  or  distance, 
members  of  other  groups,  trades  or  professions  or  stand- 
ing to  him  in  supposed  adverse  economic  class  relation- 
ship hke  that  of  producer  and  middleman,  of  employer 
and  employee  —  the  member  of  another  tribe,  a  PhiUs- 
tine;  in  law,  a  Stranger.  To  most  persons  this  is  the 
relation  in  which  his  Government  stands  to  him  — 
something  impersonal,  remote,  almost  neghgible. 

These  distinctions  I  have  called  instinctive,  that  is  to 
say,  the  majority  of  men  are  inclined  to  accept  them 
without  reasoning ;  but  by  this  token  they  are  a  survival 
in  culture  of  primitive  distinctions  ingrained  into  our 
racial  habits  of  thought  through  aeons  of  human  experi- 
ence under  early  barbaric  and  semi-civihzed  conditions. 
They  result  from  and  testify  to  the  evolution  by  which 
the  morals  of  humanity  have  progressed  through  primi- 
tive culture  to  civilization. 

Now  it  may  be  said  roughly  that  the  application  we 
tend  to  make  of  our  three  estabhshed  grades  of  subjec- 


16  MORALS   OF  TRADE   IN  THE  MAKING 

tive  moral  sentiment  to  the  three  objective  social  classes 
to  whom  we  owe  moral  obhgation,  is  as  follows: 

1st.  To  the  Family  group  we  feel  that  we  owe  the 
sentiment  of  Honor. 

2d.  To  the  Tribe  —  toward  our  own  social  group  — 
we  tend  to  practice  the  principles  of  Honesty. 

3d.  To  the  Stranger  —  we  satisfy  ourselves  with  what 
is  compelled  by  the  Law. 

But  in  our  progressive  civiUzation  humanity  is  con- 
tinually establishing  conditions  wherein  men  become 
more  and  more  economically  dependent  upon  one 
another;  tending  to  aggregate  themselves  into  larger 
and  larger  communities,  either  by  concentration  into 
city  Mfe,  or  by  the  connection  of  communities  separated 
in  space  but  drawn  together  by  a  greater  ease  and 
rapidity  of  transportation.  These  changes  newly  force 
upon  large  groups  of  people  the  economic  relation  of 
the  Tribe,  whose  social  relation  still  remains  that  of 
the  Stranger;  and  brings  for  a  time  perplexity  and  con- 
fusion as  to  what  the  moral  relation  is,  that  is  to  be 
finally  sanctioned  by  social  sentiment.  In  fact,  during 
this  period  of  evolution  and  change  the  groups,  and  the 
individuals  of  which  they  are  composed  are  uncertain 
whether  to  be  guided  in  their  mutual  interrelations  by 
the  rules  of  the  Law,  or  of  Honesty. 

Further,  in  the  progress  of  our  morality,  to  the  stand- 
ards of  Honesty  are  being  added  from  time  to  time 
some  particles  of  the  higher  ethical  notions  of  duty 
embodied  in  the  ideals  of  Honor;  and  at  the  same  time 
some  portions  of  the  social  codes  of  Honesty  heretofore 


MORALS  OF  TRADE  IN  THE  MAKING  17 

undigested  by  the  Law  are  gradually  being  absorbed 
into  it,  defined,  and  vested  with  its  penal  sanctions.  In 
the  progress  of  our  social  life  the  widening  cu-cles  of 
economic  activity  in  all  lines  of  business  are  epreading 
outward  and  forcing  upon  us  with  the  public,  the 
stranger,  the  man-in-the-street,  those  intimate  relations 
which  formerly  were  confined  to  the  group  of  our  per- 
sonal acquaintances,  our  anthropological  Tribe.  Our 
butcher  lives  in  Kansas  City  or  Chicago,  our  tailor  in 
Cincinnati,  our  baker  in  Battle  Creek  and  our  shoemaker 
in  Brockton  or  Lynn.  Merchandise  is  being  standard- 
ized, for  without  this  process  the  needs  of  long  distance 
and  rapid  trading  —  the  handling  of  large  quantities 
and  numerous  transactions  in  the  briefest  possible 
space  of  time  —  would  be  impossible. 

Equally  essential  to  the  production  of  this  result, 
economizing  as  it  does  to  the  utmost  the  cost  of  the 
distribution  of  commodities,  is  the  standardization  of 
conduct;  so  that  the  methods  governing  this  rapid 
exchange  of  commodities,  services  and  money  —  the 
business  morality  involved  —  may  be  as  reliable  as  the 
grades  of  merchandise  with  which  it  deals.  What  does 
this  mean?  It  means  that  a  fixed  and  undeviating 
standard  of  commercial  ethics  has  and  will  have  a  potent 
influence  in  furthering  the  economical  development  of 
business;  and  that  therefore  anything  that  business  men 
can  contribute  to  this  end  by  making  their  transactions 
ethically  more  dependable,  will  in  the  long  rim  contribute 
to  their  final  success. 

What  is  success  in  business?    It  is  by  no  means 


18  MORALS  OF  TRADE  IN  THE  MAKING 

measured  by  the  amassing  of  wealth.  It  is  a  poor  and 
shabby  substitute  for  success  that  is  based  on  the 
acquisition  of  money  at  the  expense  of  character. 
Character,  the  sum  total  of  a  man's  fixed  sentiments 
and  habitual  modfes  of  thought  and  action,  is  as  much 
determined  by  his  deeds  as  it  in  the  end  forecasts  his 
conduct.^  In  business,  in  the  obtaining  of  credit  and 
as  an  essential  to  the  command  of  capital,  character  is 
often  a  better  asset  than  dividend  paying  securities. 
It  is  the  basis  of  reputation,  by  means  of  which  its 
possessors  do  big  things  easily  and  become  acknowledged 
leaders  in  their  chosen  field.  It  comes  nearer  being 
immortal  than  any  part  of  the  tangible  qualities  that 
constitute  a  man,  for  its  memory  and  the  respect  due 
to  it  live  for  many  years  after  his  money  has  been 
forgotten.  And  it  cannot  be  possessed  by  those  whose 
thirst  for  riches  leads  them  to  use  immoral  means  to 
serve  their  unworthy  ends.  The  man  of  inteUigence 
and  imagination  who  fails  to  acquire  it  in  early  life  is 
doomed  to  a  disappointed  and  unsatisfied  maturity  and 
old  age. 

Nor  can  a  career  whose  pursuit  affords  no  opening 
for  the  full  development  of  latent  talent  and  power  be 
called  satisfactory  or  successful.  Herein  therefore  lie 
the  three  touchstones  of  success :  —  character,  developed 
talents,  wealth;  no  man  may  congratulate  himself  as 
achieving  success  in  fife  unless  he  has  attained  in  reason- 
able proportions  all  three  of  these  desiderata. 

I  shall  have  failed  in  the  foregoing  presentation  of 

1  George  Eliot,  "Adam  Bede,"  ch.  xxix,  269. 


MORALS  OF  TRADE   IN  THE  MAKING  19 

the  subject  matter  of  this  discussion  if  I  have  not  been 
able  to  draw  a  picture,  (1)  of  business  Ufe  as  affected 
by  certain  causes  which  largely  by  reason  of  the  unequal 
pace  of  moral  and  economic  development  in  the  last 
half  century  have  resulted  in  inunoral  conduct  dis- 
tinctly anti-social  in  its  tendencies  but  imperfectly 
reprobated  and  punished  by  public  opinion,  and  by 
reason  of  its  still  more  sluggish  and  uneven  evolution, 
distinctly  unpunishable  by  the  Law.  But  (2)  business 
in  the  main  is  not  immorally  conducted;  in  fact  the' 
tendency  to  economy  and  rapidity  of  trading  compel! 
the  settling  and  standardization  of  the  ethical  prin- 
ciples imderlying  its  transactions,  as  it  has  compelled 
or  is  compelling  the  standardization  of  the  merchandise 
which  is  the  material  of  the  same.  And  were  the  bulk 
of  transactions  dishonest,  or  even  suspicious,  the  oppor- 
tunity of  the  dishonest  trader  would  be  taken  away; 
for  he  relies  upon  general  acceptance  of  a  trading  moral 
principle,  as  reasonably  estabUshed,  for  his  chance  by 
"practicing  a  protective  mimicry  of  the  good,"^  to  prey 
upon  the  unsuspicious  pubUc. 

The  basic  idea  of  Duty,  appUcable  to  business  as  to 
all  other  kinds  of  social  conduct  embraced  within  the 
definition  of  Morality  has  been  found  with  singular 
unanimity  ^  by  all  teachers  of  mankind  in  the  golden 
rule,  first  propounded  by  Confucius  —  that  each  one 
should  treat  others  as  himself.  Rational  consideration 
of  this  principle  with  respect  to  any  given  act  or  line 

'  Ross,  "Sin  and  Society,"  p.  59. 

^  Hobhouse,  "Morals  in  Evolution,"  II,  219. 


20  MORALS  OF  TRADE  IN  THE  MAKING 

of  conduct  will  do  much  to  eliminate  that  degree  of 
selfish  interest  which  we  all  recognize  as  anti-social  and 
morally  reprehensible.  Valuable  assistance  to  clear- 
ness of  ethical  vision  may  also  be  obtained  from  an 
endeavor  to  answer  the  question  —  what  would  be  the 
result  if  every  member  of  my  community  were  to  pursue 
this  line  of  action?  If  the  answer  be  "anarchy,"  its 
immoral  aspect  will  thereby  be  well  defined. 

The  educated  man  who  to-day  goes  forth  from  his 
alma  mater  without  some  recognition  of  his  social 
responsibiUties,  of  the  need  of  his  activity,  not  alone 
along  the  more  sordid  Hues  of  self  support,  but  in  play- 
ing the  part  which  his  mental  training  gives  him  the 
opportunity  to  assume  as  a  leader  in  the  wider  activities 
of  the  social  life,  does  not  attain  that  nobler  and  higher 
success  in  life  which  is  the  reasonable  goal  of  an  intelli- 
gent and  enUghtened  ambition.  If  he  fails  to  seize  this 
opportunity  when  it  comes  before  him  he  neglects  to  use 
the  most  efficient  force  to  which  he  can  possibly  sub- 
ject himself  in  the  building  of  his  own  character. 

The  social  effort  involved  in  the  furtherance  of  the 
moral  evolution  of  the  community  is  not  a  serious  one 
if  generally  shared  by  intelHgent  men.  Progress  in 
ideas  —  and  this  is  especially  true  of  moral  ideas  —  is 
both  produced  and  propagated  by  discussion  —  in  inter- 
vals of  work,  at  the  club,  over  the  coffee  and  cigars,  in 
society  —  both  with  men  and  women  —  in  the  press, 
and  in  the  pulpit.  Next  to  personalities  there  is  nothing 
in  which  people  are  really  so  much  interested  as  in  moral 
questions.     Moral   ideals   therefore   spread   easily   and 


MORALS  OF  TRADE  IN  THE  MAKING  21 

with  comparative  quickness;  you  never  can  tell  when 
you  talk  about  them  even  with  a  stranger,  how  mucli 
influence  they  will  have  upon  his  mind,  or  how  far 
afield  he  will  carry  them.  They  need  not  be  expressed 
abstractly  or  didactically,  for  there  is  a  plenty  of 
current  specific  conduct  publicly  known  to  which  they 
may  be  interestingly  apphed.  Much  stress  has  properly 
been  laid,  in  the  expression  of  the  social  sentiment,  on 
public  condemnation  as  a  punishment  for  anti-social 
acts  in  esse  and  a  deterrent  to  immoral  acts  in  posse. 
It  is  the  misfortune  of  the  puritanical  view  of  fife  that 
a  similar  stress  has  never  been  laid  upon  the  importance 
of  social  approbation  of  those  moral  acts  by  which  the 
community  is  benefited.  To  accomphsh  the  best  results 
we  must  tear  down  the  ancient  prejudice  that  the  per- 
formance of  duty  needs  no  praise;  for  it  disregards  that 
elemental  principle  of  human  nature,  that  the  pleasure 
produced  by  commendation  is  a  potent  factor  in  the 
repetition  of  praiseworthy  acts.  In  business  its  mani- 
festation would  be  to  develop  a  feehng  which  would 
actually  give  a  higher  profit  to  him  who  renders  a  better 
social  service/  in  the  production  or  distribution  of  his 
merchandise;  and  the  discrimination  between  wealth 
justly  and  unjustly  gained.  Beside  and  beyond  these 
duties  which  all  educated  men  owe  to  the  unorganized 
collective  body  of  persons  constituting  their  home 
community,  they  owe  another  and  equally  important 
duty  to  the  organized  State,  in  enforcing  upon  it  its 

1  Jenks,  "The  Modern  Standard  of  Business  Honor."    Pub.  Am. 
Econ.  Assn.,  3d  ser.,  VIII,  17. 


22    MORALS  OF  TRADE  IN  THE  MAKING 

duty  to  make  the  legal  conditions  surrounding  business 
life  such  that  by  reason  of  their  divergence  from  the 
moral  sentiment  of  the  community,  human  nature  shall 
not  be  tempted  beyond  its  strength.  Best  of  all,  if  we 
endeavor  in  our  own  conduct  to  set  up  Honor  rather 
than  Law  as  our  standard  of  duty  and  in  furtherance 
of  the  ideal  of  the  brotherhood  of  man  extend  its  appli- 
cation from  the  narrow  circle  of  the  family  or  the  social 
group  to  its  furthest  public  possibilities,  we  shall  in  the 
end  make  what  we  do  the  law,  and  so  raise  to  a  higher 
level  the  whole  social  sentiment  and  moral  standard 
of  our  time. 


PRODUCTION 


BY   GEORGE   W.    ALGER 


When  Charles  Dickens  came  to  this  country  in  the 
forties,  he  found  us,  judging  by  "Chuzzlewit"  and  the 
"American  Notes,"  a  very  self-satisfied  people.  Second 
only  to  our  indulgence  in  chewing  tobacco,  he  found 
our  mdulgence  in  boastful  expression  of  our  own  great- 
ness and  our  supreme  conviction  that  ours  was  the 
greatest  country  on  earth  and  we,  its  greatest  people. 
He  felt  constrained  to  expose  to  the  pained  senses  of 
our  grandparents  the  glaring  error  in  our  conceptions 
of  ourselves.  If  Dickens  should  rise  from  his  grave 
to-day  and  visit  us  again  and  once  more  write  his 
impressions  of  us,  I  am  sure  he  would  still  have  for  his 
main  theme,  the  attitude  of  the  American  towards 
himself.  But  where  he  found  buoyant  self-satisfaction 
before,  he  would  find  in  the  present  generation  a  curious 
twist  in  the  other  direction.  We  have  grown  rich  and 
powerful,  to  be  sure,  and  we  are  still  proud  of  our 
development  and  of  the  prospects  of  the  future,  but 
with  it,  thank  Heaven,  we  have  greatly  developed  the 
capacity  for  self  criticism. 

This  discontent,  which  to-day  is  the  prominent  part 
of  our  self  criticism  has  largely  to  do  with  our  moral 
standards.    The  past  few  years  have  been  prolific  of 

23 


24  PRODUCTION 

distressing  scandals,  the  Post  Office,  the  Insurance 
revelations,  the  Beef  Trust  and  the  constant  succession 
of  exhibitions  of  municipal  corruption  from  New  York 
to  San  Francisco.  Now,  there  is  something  foreign  to 
the  American  temper  about  hushing  up  public  scandal. 
So  much  has  been  put  into  print  about  our  political, 
financial  and  business  corruption,  that  many  good 
people  have  been  made  somewhat  pessimistic  —  have 
been  led  to  beheve  that  these  conditions  are  charac- 
teristic of  American  life  —  that  we  are  degenerating 
morally  —  that  we  are  interested  mostly  in  money,  in 
sound  money  and  not  in  clean  money,  and  in  its  quantity 
rather  than  in  its  quahty  or  how  we  get  it. 

Pessimism  has  always  a  knowing  air  and  it  usually 
has  some  definite  superficial  fact  or  other  to  point  to 
as  its  justification.  But  the  noticeable  thing  about 
these  waves  of  general  pessimism  is  that  they  usually 
seem  to  come  a  Uttle  late.  They  tend  to  get  strongest 
when  the  reason  for  coming  has  largely  disappeared. 
If  for  example  half  a  dozen  of  the  depressing  commence- 
ment lectures  of  the  last  year  and  the  year  before,  on 
our  moral  decrepitude,  had  been  dehvered  in  the  days 
when  the  ideal  of  American  prosperity  seemed  to  be 
nothing  but  material  wealth,  however  come  by,  and 
the  full  diimer  pail,  these  addresses  would,  in  my  judg- 
ment at  least,  have  been  somewhat  opportune;  but  they 
were  not  particularly  opportune  when  they  were  actually 
given.  These  academic  pessimists  remind  me  of  an  old 
lady  in  my  native  city  who  made  a  specialty  of  going  in 
and  talking  about  death  to  convalescents.     Somehow 


PRODUCTION  25 

she  never  seemed  to  get  around  to  prepare  her  sick 
friends  for  death  until  after  they  were  really  beginning 
to  get  well,  and  she  would  then  discoui'se  on  her  favorite 
theme  so  earnestly  that  she  quite  overlooked  the  actual 
condition  of  the  patient.  I  think  of  her  sometimes 
when  I  read  these  pessimistic  utterances  concerning 
the  present  moral  tone  of  American  business  life.  These 
exposures  as  I  see  them  are  not  so  much  indications  of 
America  sick  as  of  America  getting  well.  The  cor- 
ruption we  hear  so  much  about  is  not  new.  The  new 
thing  is  the  desire  to  uproot  and  destroy  it. 

I  have  made  this  introduction  because  I  want  to  be 
sure  to  make  perfectly  clear  the  spirit  in  which  I  ap- 
proach my  subject  by  expressing  at  the  outset  my  own 
sincere  conviction  that  the  professional  and  business 
life  of  America  into  which  you  are  so  soon  to  enter,  has 
for  its  essential  qualities,  not  decadence  but  rather 
regeneration,  in  which  moral  forces  have  not  lost  ground 
ibut  are  receiving  a  sure  and  constant  increase  of  power. 
\  I  have  been  asked  to  talk  to  you  about  the  ethics  of 
production.  So  far  as  its  human  factors  are  concerned 
production  in  a  business  sense  involves  three  human 
relations.  First,  that  of  the  producer  to  his  own  em- 
ployees, by  whose  labor  his  wares  are  made;  second,  his 
relation  to  the  trade,  with  the  factors  and  retailers  who 
handle  his  goods,  and  third,  his  relation  with  the  public 
who  buys  those  goods. 

There  is  no  subject  of  a  social  character  which  is 
receiving  to-day  more  attention  from  both  the  general 
pubhc  and  the  business  world  than  that  of  the  relation 


26  PRODUCTION 

of  employer  and  employee.  Now  it  is  one  of  the  easiest 
things  in  the  world  to  lay  down  in  general  terms  abstract 
propositions  as  to  their  reciprocal  duties.  Justice  de- 
mands for  instance  that  the  employer  should  pay  his 
employees  fair  wages,  exact  only  fair  hours  of  employ- 
ment, and  that  the  conditions  of  the  employment  should 
be  such  as  to  give  due  protection  to  the  health  and 
safety  of  the  worker.  The  employee  on  his  part  should 
make  by  his  labor  just  return  for  his  wages.  This  far 
it  is  plain  saihng,  or  rather  it  is  not  sailing  at  all,  for  we 
have  not  yet  really  embarked.  The  moment  we  leave 
the  realm  of  abstract  morality,  the  moment  we  begin 
to  apply  ethical  principles  to  a  going  business,  trouble 
begins.  It  begins,  not  because  the  principles  themselves 
are  false  or  that  they  become  doubtful  when  tested  by 
use,  but  because  of  certain  considerations  which  render 
their  application  difficult. 

You  remember  the  colloquy  between  Morrell  and 
Burgess  in  "  Candida,"  and  the  retort  of  the  hard  old 
factory  man:  ''But  arter  all  you  can't  take  everything 
a  clergyman  says  serious,  or  the  world  couldn't  go  on." 

What  we  are  interested  in  here  is,  I  take  it,  not 
ideals  in  the  abstract,  which  would  prevent  the  world 
going  on,  but  ideals  capable  of  being  worked  into  the 
processes  of  the  world,  ideals  in  conduct,  and  to  consider 
from  this  standpoint  some  of  the  problems  of  industrial 
justice.  We  are  not  interested  in  an  abstract  employer 
in  a  hypothetical  ideal  business,  but  the  actual  employer 
in  a  concrete  business  world  and  the  practical  difficul- 
ties in  the  way  of  the  industrial  ideal. 


PRODUCTION  27 

Looked  at  from  one  point  of  view  these  practical 
questions  do  not  seem  even  to  exist.  That  point  of 
view  is  the  one  which  makes  the  whole  matter  of  the 
treatment  of  the  employee  by  the  employer  a  pm*ely 
individual  one,  and  the  responsibihty  for  which  is  made 
to  rest  wholly  with  the  individual  employer.  A  good 
many  difficulties  may  be  made  to  disappear  by  the 
happy  device  of  not  looking  at  them.  We  use  that 
method  to  a  very  large  extent  in  our  ordinary  consid- 
erations of  the  employment  question.  Take  a  concrete 
illustration,  A  very  large  per  cent  of  our  ready-made 
clothing  is  made  in  the  slums  of  the  great  cities 
in  tenement  houses,  in  ill-ventilated  or  unventilated 
rooms  by  men,  women,  and  very  young  children  who 
work  long  hours  for  almost  incredibly  small  pay.  The 
class  of  producers  who  employ  these  poor  people  to 
make  up  these  garments  in  these  places  we  call  sweaters, 
and  the  sweater  is  the  stock  example  of  the  bad  em- 
ployer. He  is  the  blackest  black  sheep  of  the  producing 
world.  We  call  him  hard  names  and  no  doubt  he  de- 
serves them  all.  But  if  we  accuse  the  sweater  of  all 
the  inhumanity  with  which  his  class  is  charged,  he  will 
answer  it  all  by  a  very  few  words,  simply  expressed, 
which  to  him,  at  least,  offer  a  complete  reply  to  the 
whole  indictment.  He  will  say,  "Do  you  know  what 
the  Broadway  wholesaler  pays  me  for  making  coats? 
Now  you  say  I  pay  too  little  to  my  help.  I  answer," 
says  the  sweater,  "if  I  paid  more,  if  I  did  not  work  my 
people  long  hours,  if  I  had  no  small  cheap  children  to 
work  for  me,  I  could  not  compete  for  the  wholesaler's 


28  PRODUCTION 

trade.  I  should  be  put  out  of  business  by  my  com- 
petitors who  work  as  I  work  now,  and  who  would  under- 
bid me  if  I  should  change  the  conditions  of  my  work. 
Shall  I  commit  business  suicide  to  gi'atify  your  kind 
heart?"  It  is  easy  for  us  to  tell  the  sweater  to  commit 
business  suicide.  Such  a  gratifymg  demise  costs  us 
nothing.  But  suicide,  business  or  otherwise,  answers 
few  problems. 

Now  you  and  I  have  very  little  use  for  the  man  who 
always  cries  that  he  is  a  victim  of  circumstances.  You 
remember  Johnson's  retort  to  the  man  who  was  excus- 
ing some  rascahty  by  saying  "One  must  live,"  "I'm 
not  so  sure  of  it,"  said  the  old  doctor,  I  am  not  trying 
to  defend  the  sweater,  nor  do  I  suggest  that  the  fright- 
ful competitive  struggle  in  which  his  business  Ufe  is 
lived  lessens  his  individual  responsibility,  I  am  simply 
calling  your  attention  by  concrete  illustration  to  one 
of  the  great  practical  difficulties  of  applying  abstract 
rules  of  moral  conduct  to  business. 

Now  this  exaggerated  illustration  from  conditions  in 
the  so-called  sweated  trades  I  have  brought  up  to  make 
you  consider  what  the  individual  responsibility  of  the 
producer  is  in  the  face  of  that  situation  or  other  situa- 
tions similar  if  less  extreme.  Competition  is  the  root 
and  basis  of  business  life.  In  some  industries  competi- 
tion is  very  intense,  the  margin  of  profit  is  very  narrow. 
Where  that  competition  is  so  intense,  the  practical  dif- 
ficulty standing  in  the  way  of  the  well-intentioned  em- 
ployer who  wants  to  treat  his  employees  fairly  seems 
almost  insuperable.     Wliat  is  to  be  done?    How  are 


PRODUCTION  29 

the  working  conditions  to  be  raised  to  a  plane  of  decency? 
Now  there  are  three  solutions  offered  to  this  problem. 
One  is  to  reach  the  conscience  of  the  employer,  to  make 
him  feel  a  greater  moral  responsibility  for  the  welfare 
of  his  help,  to  make  him  anxious  to  improve  their  con- 
dition; and,  by  exhorting  him  and  at  times  by  abusing 
him,  make  him  clean  up  his  shop,  raise  wages  and 
shorten  hours.  I  sometimes  wish  those  of  us  who  are 
interested  in  this  particular  method  of  improving  social 
conditions  would  use  more  often  the  example  of  the 
good  rather  than  the  bad  employer.  It  is  always  im- 
portant to  know  just  what  can  be  done  under  existing 
business  conditions.  The  best  way  to  ascertain  what 
can  be  done  is  to  see  what  high-class  employers  are  in 
fact  doing  and  to  try  and  make  other  employers  comply 
with  a  demonstrably  practical  standard.  Some  time 
ago,  one  of  the  officers  of  a  national  organization  in- 
terested in  improving  working  conditions  went  to  a  New 
Jersey  town  to  examine  the  glass  manufactories  there, 
with  particular  reference  to  child  labor.  She  went 
about  at  night,  found  these  establishments  running  full 
blast,  with  little  children  busily  engaged,  carrying  bottles 
to  and  fro  all  night  long.  One  estabUshment,  however, 
she  noticed  was  dark.  The  next  morning  she  went  back 
to  make  sure  that  it  was  really  closed  down  and  some- 
what to  her  surprise  found  it  in  busy  operation.  The 
proprietor  met  her  courteously  and  took  her  through 
the  plant.  There  were  no  children  except  those  ob- 
viously above  the  legal  age.  The  general  conditions 
were  good.     At  the  end  of  her  visit  she  said  inquiringly, 


30  PRODUCTION 

"You  do  not  run  your  plant  at  night?"  ''No,"  he 
answered.  "Do  you  let  your  fires  go  out?"  "Yes." 
"That  costs  you  money,  doesn't  it?"  "Yes."  "These 
other  bottle  makers  say  they  cannot  afford  to  close  at 
night  and  that  competition  compels  them  to  use  little 
children  in  their  work."  "Yes,"  he  rephed,  "but  I  do 
not  try  to  make  so  much  money  as  my  friends.  I  do 
not  like  to  work  at  night,  nor  do  my  employees,  nor 
do  I  care  to  rob  the  schools  to  get  my  help.  My  busi- 
ness is  profitable  enough  and  I  am  satisfied." 

Now  I  say  this  was  an  interesting  man,  but  wliile  I 
know,  as  perhaps  many  of  you  know  about  the  bad  con- 
ditions so  far  as  child  labor  is  concerned  in  the  glass 
manufactories,  which  are  notoriously  evil  places  for 
children,  I  cannot  give  you  the  name  of  this  good 
employer  who  did  not  try  to  make  so  much  money 
and  who  still  "lived"  in  a  business  sense  under  the 
competition  of  his  rivals.  It  would  be  more  useful  in 
the  campaign  against  child  labor  if  the  facts  regarding 
this  man's  business  were  pubhcly  known  than  that  we 
should  have  a  good  part  of  the  shocking  details  of  the 
employment  of  children  in  glass  factories.  For  his 
business  would  show  what  a  glass  manufacturer  can  do 
if  he  chooses,  under  existing  business  conditions,  and  it 
would  cover  and  meet  the  plea  of  economic  helplessness 
so  often  urged  by  his  fellows.  Some  time  we  shall 
become  wise  enough  to  follow  this  poMcy,  and  recognize 
the  tremendous  social  value  of  such  employers.  There 
is  no  more  useful  man  in  business  to-day  than  the  man 
who  establishes  high  standards  and  shows  that  they 


PRODUCTION  31 

can  be  maintained  in  actual  practice.  One  distressing 
thing  about  this  story  to  me  is  in  one  simple  fact  which 
I  have  omitted  thus  far,  namely,  this  good  bottle  man 
was  a  Frenchman! 

Another  method  of  improving  industrial  conditions  is 
to  encourage  the  workers  to  combine  in  trade  unions, 
and  gain  power  by  combination  so  that  they  can  compel 
an  unwilling  employer  to  do  the  things  which  otherwise, 
but  for  their  own  insistence,  he  would  have  refused. 
This  is  good  in  its  way,  but  after  all  permanent  moral 
progress  can  hardly  be  made  with  a  club.  There  is  no 
special  ethical  quality  in  what  a  man  does  solely  under 
compulsion.  Another  phase  of  this  use  of  the  Labor 
Union  I  will  consider  later.  To  a  very  considerable 
number  of  people  interested  in  improving  business  con- 
ditions for  the  worker,  these  two  methods  are  the  only 
methods  for  making  practical  progress.  They  oppose 
the  third  method  of  improving  those  conditions,  which 
is  to  enact  law  which  shall  regulate  at  times  the  con- 
ditions of  employment,  sanitary  and  otherwise,  and 
improve  the  method  of  conducting  work.  One  objec- 
tion usually  urged  to  the  enactment  of  law  is  that 
such  law  tends  towards  what  is  vaguely  described  as 
sociahsm.  Another  is  that  you  can't  make  men  good 
by  legislation.  These  critics  point  out  that  Enghsh 
law  centuries  ago  contained  statutes  under  wliich 
Justices  of  the  Peace  yearly  determined  the  wages  which 
journeymen  were  to  have,  prescribed  the  length  and 
breadth  of  cloth  which  should  be  made  or  used,  and 
made  other  similar  attempts  at  regulating  industry, 


32  PRODUCTION 

all  of  which  failed.  But  there  is  a  distinction  between 
these  meddlesome  regulations  contained  in  the  old  Eng- 
hsh  law,  which  were  made  not  to  promote  the  interests 
of  the  worker  but  to  hamper  him  in  his  social  progress, 
to  keep  him  where  the  higher  classes  thought  he  belonged; 
and  legislation  which  to-day  endeavors  in  sundry  in- 
stances to  mitigate  the  hardships  of  over  competitive 
industry  lest  the  competition  should  oppress  the  lives 
of  countless  thousands  to  make  trade  profits.  The 
modern  theory  for  this  legislation  has  been  so  well 
expressed  by  Woodrow  Wilson,  that  I  quote  from  his 
book,  "The  State,"  the  following: 

"There  are  some  things  outside  the  field  of  natural 
monopolies  in  which  individual  action  cannot  secure 
equalization  of  conditions  of  competition,  and  in  these 
also,  as  in  the  regulation  of  monopolies,  the  practice 
of  government  (of  our  own  as  well  as  of  others)  has 
been  increasingly  on  the  side  of  government  regulation. 
By  forbidding  child  labor,  by  supervising  the  sanitary 
conditions  of  factories,  by  Umiting  the  employment  of 
women  in  occupations  hurtful  to  their  health,  by  insti- 
tuting official  tests  of  the  purity  or  quahty  of  goods 
sold,  by  Umiting  hours  of  labor  in  certain  trades,  by  a 
hundred  and  one  Hmitations  of  the  power  of  miscrupu- 
lous  or  heartless  men  to  outdo  the  scrupulous  and 
merciful  in  trade  or  industry,  government  has  assisted 
equity.  Those  who  would  act  in  moderation  and  good 
conscience  where  moderation  and  good  conscience  to  be 
indulged  require  an  increased  outlay  of  money,  in  better 
ventilated  buildings,  in  greater  care  as  to  the  quality 


PRODUCTION  33 

of  goods,  etc.,  cannot  act  upon  their  principles  so  long 
as  grinding  conditions  for  labor  or  more  unscrupulous 
use  of  the  opportunities  of  trade  secure  to  the  uncon- 
scientious an  unquestionable,  and  sometimes  even  a 
permanent  advantage;  they  have  only  the  choice  of 
denying  their  consciences  or  retiring  from  business.  In 
scores  of  such  cases  government  has  intervened  and  will 
intervene  by  way  not  of  interference,  by  way  rather  of 
maldng  competition  equal  between  those  who  would 
rightly  conduct  enterprise  and  those  who  basely  conduct 
it.  It  is  in  this  way  that  society  protects  itself  against 
permanent  injm-y  and  deterioration  and  secures  health- 
ful equality  of  opportunity  for  self-development." 

Organized  society  ought  to  be  on  the  side  of  our  friend 
the  bottle  man.  That  he  was  able  to  live  in  competi- 
tion with  his  child  exploiting  rivals  was  entirely  to  his 
credit,  not  at  all  to  ours.  New  Jersey  still  thinks  it 
proper  that  children  of  fourteen  should  work  all  night 
long  in  the  glass  factories. 

Now  I  venture  to  say  that  comparatively  little  of 
this  type  of  legislation  would  be  obtained  to-day  but 
for  the  acquiescence  and  at  times  the  active  assistance 
of  enlightened  employers.  The  improvement  in  work- 
ing conditions  which  has  been  made  in  the  last  quarter 
of  a  century  has  been  great.  We  should  not  be  dis- 
couraged. We  complain  of  the  conditions  of  child 
labor  in  the  South,  we  complain  of  the  sweated  trades 
in  our  cities,  and  when  we  fail  to  consider  the  subject 
historically  or  on  broad  lines  we  find  many  of  these 
pitiful   htories  of  exploitation  of  young  Hfe  in   these 


34  PRODUCTION 

industries  and  in  the  coal  mines,  exceedingly  dishearten- 
ing and  distressing.  But  compare  the  woman  working 
in  the  slums  in  the  long  hours  of  the  sweat  shop  with 
the  conditions  in  England  in  the  first  and  second  quarter 
of  the  nineteenth  century,  with  the  woman  in  the  mines 
crawling  on  her  hands  and  knees  with  a  rope  tied  around 
her  waist  dragging  coal  in  crude  buckets  in  narrow 
tunnels  in  which  she  could  not  possibly  stand  upright, 
working  in  dirt  and  mud,  Uving  in  degradation  and 
filth  in  the  mine  itself.  Compare  the  breaker  boy  pick- 
ing coal  in  Pennsylvania  with  the  chimney  sweep  of  the 
first  quarter  of  the  nineteenth  century,  struggling  up 
and  down  blackened  flues,  through  which  the  body 
could  scarcely  pass,  often  killed  by  the  smoke  or  burned 
by  the  fire  of  the  stove  below,  the  chimney  sweep  whom 
Sydney  Smith  describes  in  his  essay,  apologizing  ironi- 
cally for  an  interest  which  in  his  day  was  so  unusual,  in 
"the  dirty  tears  of  the  poor."  In  1847  when  the  Eng- 
lish factory  act  of  that  year  was  up  for  debate  in  the 
House  of  Commons,  one  of  the  most  strenuous  oppo- 
nents to  the  limiting  of  hours  of  factory  employees  was 
that  staunch  friend  of  America,  John  Bright,  one  of  the 
most  high-minded  men  who  ever  sat  in  the  House  of 
Commons.  Here  is  part  of  the  speech  which  he  made  in 
1847  on  the  proposed  factory  act. 

"There  is  one  consideration  which  the  House  ought 
to  bear  in  mind  with  respect  to  the  employment  of 
women  in  factories.  The  assertion  was  that  their  labor 
in  factories  was  extremely  hard  and  long  continued,  but 
how  did  it  happen  that  women  were  found  in  factories 


PRODUCTION  35 

at  all?  The  very  fact  that  they  were  there  in  large  num- 
bers was  conclusive  evidence  that  their  labor  in  factories 
was  not  hard." 

Again  he  says:  ''Did  the  Honorable  member  from 
Dorsetshire  forget  that  these  children  did  not  work 
more  than  six  hours  a  day  until  they  were  thirteen  years 
oldf  By  interfering  with  the  right  to  exert  themselves, 
you  are  violating  one  of  the  greatest  privileges  and 
dearest  rights  of  these  people." 

I  quote  this  because  I  think  it  illustrates  the  change 
in  the  attitude  of  our  time  towards  this  subject.  Imag- 
ine, if  you  will,  a  speaker  of  national  prominence,  either 
in  our  country  or  Great  Britain,  giving  utterance  to 
similar  sentiment  to-day.  The  growth  of  the  sense  of 
pity  has  been  one  of  the  most  remarkable  features  of  our 
development  in  the  last  half  centiu-y.  This  combination 
of  ignorance  and  lack  of  sympathy  in  Bright's  speech 
jars  upon  us.  It  belongs  to  a  less  humane  era  than 
ours. 

I  am  not  advocating  any  diminution  of  the  individual 
responsibihty  of  the  employer.  Wliat  I  am  calhng  to 
your  attention  is  the  increasing  acceptance  of  the  prin- 
ciple of  social  responsibility  to  supplement  it  —  a 
responsibihty  recognized  and  expressed  in  laws  which 
limit  the  illegitimate  advantages  which  the  unscrupulous 
employer  otherwise  has  over  his  more  humane  com- 
petitors, through  his  very  willingness,  without  such 
restrictions,  to  oppress  and  exploit  his  employees. 
Considering  the  lack  of  adequate  acceptance  as  yet  of 
this  social  responsibility  (for  it  is  fairly  new  doctrine 


36  PRODUCTION 

with  us)  I  think  the  general  standard  of  treatment  of 
employees  in  our  industrial  estabUshments  is  rather 
higher  than  might  be  expected.  We  have,  for  example, 
no  laws  such  as  exist  in  England,  Germany  and  France 
concerning  industrial  accidents.  In  England  as  Mr. 
Asquith  so  pithily  expressed  it  "The  blood  of  the  work- 
man is  part  of  the  cost  of  the  product;"  that  is,  the  law- 
assumes  that  accidents  are  an  inevitable  part  of  the 
very  workings  of  a  producing  business,  and  should  for 
that  reason  be  recognized  as  such  and  paid  for  by  being 
made  part  of  the  cost  of  the  goods  themselves,  just  as 
rent,  insurance,  machinery,  etc.,  is  added  to  that  cost. 
With  us,  however,  that  principle,  one  which  President 
Roosevelt  has  advocated  recently  in  two  messages,  is 
not  recognized  and  all  but  an  insignificant  part  of  the 
burden  of  industrial  accidents  falls  solely  so  far  as  the 
law  is  concerned  upon  the  injm-ed  employee.  Notwith- 
standing this,  many  American  employers,  particularly 
in  large  estabhshments,  are  voluntarily  assuming  for 
themselves  responsibihty  for  these  accidents,  paying 
wages  during  disability,  providing  medical  attendance 
and  making  a  general  compensation  for  them.  The 
tendency  to  do  this,  I  think,  increases.  Most  of  the 
great  railroad  companies  contribute  to  railway  reUef 
associations  created  for  the  purpose  of  caring  for  injured 
employees  hurt  in  the  service.  The  United  States  Steel 
Company  has  a  very  elaborate  system  of  this  kind, 
maintaining  a  large  hospital  and  dispensing  thousands 
of  dollars  on  the  accidents  which  are  inevitable  in  its 
huge  plants.    I  know  of  a  number  of  large  companies  in 


PRODUCTION  37 

New  York  who  do  the  same  tiling.  Now  an  employer 
who  does  these  things  has  of  course  to  compete  in  the 
market  with  the  employer  who  does  not.  The  good 
employer  has  to  meet  the  bad  employer's  price  list;  he 
has  to  carry  the  handicap  which  the  expense  of  the  acci- 
dents puts  upon  him  and  still  hold  his  own  in  compe- 
tition with  the  others.  The  fact  that  an  increasing 
number  of  employers  are  thus  making  laws  for  them- 
selves which  the  State  has  not  imposed  upon  their 
competitors  is  at  once  encouraging  and  inspii'ing. 

Those  who  complain  that  the  etliical  standard  of 
treatment  of  employees  by  employers  is  below  what  it 
should  be  should  bear  in  mind  this  handicap.  We  are 
still  strongly  individuahstic  in  the  old  sense  of  the  term 
in  our  notions  of  law.  We  have  still  a  theory  of  liberty 
which  guarantees  to  the  worker  individual  rather  than 
industrial  freedom.  We  guarantee  the  adult  against 
interferences  with  the  number  of  hours  he  can  work, 
instead  of  hmiting  those  hours  where  fierce  competition 
tends  to  make  them  too  long.  We  guarantee  him  the 
right  to  work,  exposed  to  unnecessarily  dangerous 
machinery,  and  om'  law  assumes  because  he  works 
there,  meeting  those  dangers,  that  being  a  free  man  he 
has  accepted  or  assumed  the  risk  of  being  maimed  or 
killed,  it  being  part  of  his  liberty  to  work  in  danger 
rather  than  in  safety.  It  guarantees  him  the  right  to 
buy  his  supplies  at  the  company  stores  where  the  sup- 
phes  are  often  sold  far  above  market  rate  at  enormous 
profits  to  the  company  maintaining  them.  It  is  a  part 
of  his  liberty  to  purchase  his  goods  there  rather  than 


14  46 1 0 


38  PRODUCTION 

to  be  protected  against  extortion  by  positive  law.  We 
guarantee  him  this  specious  liberty  because  we  still 
assume  as  a  basis  for  industrial  life  the  existence  of  a 
theory  which  is  often  entirely  contrary  to  the  plainest 
facts  of  common  knowledge;  that  is,  we  assume  the 
existence  of  a  condition  of  individual  equality  under 
which  no  constraints  through  his  necessities  can  be  too 
burdensome  to  be  borne  by  the  worker. 

The  continuance  of  this  theory,  our  failure  to  recog- 
nize its  necessary  Umitations,  amounts  to  an  insistence 
upon  industrial  warfare  rather  than  industrial  peace. 
As  I  have  said  a  few  moments  ago  there  are  those  who 
beHeve  that  the  worker's  social  advancement  should  be 
forwarded  by  the  Labor  Union,  not  by  the  law.  If  the 
employee  is  to  have  only  those  industrial  rights  which 
he  can  get  by  combination  with  his  fellows,  if  his  union 
must  give  the  main  protection  for  his  hfe  and  happiness, 
there  is  bound  to  occur  a  certain  diversion  of  loyalty 
from  the  State  to  the  Labor  Union.  We  cannot  afford 
in  a  democratic  country  Uke  ours,  where  everybody  has 
a  vote,  to  aUenate  the  worker  from  the  State  by  over- 
strengthening  his  loyalty  to  his  Union.  I  am  reminded 
of  this  by  an  incident  which  occurred  on  the  east  side  in 
New  York  a  few  years  ago,  when  a  young  reformer 
sought  to  lecture  an  east  side  Hebrew  baker  for  having 
sold  his  vote  at  election.  He  reminded  him  of  the  duty 
he  owed  as  a  citizen  to  the  State  to  cast  an  unbought 
ballot.  The  man  repHed  "1  got  $3.50  for  my  vote. 
You  show  me  where  the  State  has  ever  been  worth  $3.50 
to  me  and  I  will  never  sell  my  vote  again;  but  you  can't 


PRODUCTION  39 

do  it!"  This  incident  occurred  shortly  after  the  United 
States  Supreme  Court  had  decided  that  a  law  Umiting 
the  hours  of  labor  in  bake-shops,  many  of  them  unspeak- 
able underground  ovens,  was  unconstitutional  as  de- 
priving those  workers  of  "Uberty"  without  "due  process 
of  law."  It  might  therefore  be  assumed  that  the  baker 
has  considered  the  value  of  that  liberty  when  he  sold 
his  vote,  and  has  concluded  that  it  was  of  comparatively 
less  value  than  the  bribe  he  had  accepted. 

Considering  now  the  relation  of  the  producer  to  his, 
retailer  and  the  public  I  realize  the  impossibility  of 
making  any  safe  generaUzations.  There  are  those  who 
consider  that  trickery  in  business  is  on  the  increase, 
that  fraud  and  adulteration  in  goods  has  become  a 
general  practice,  that  the  habit  of  paying  special  com- 
missions to  buyers  and  purchasing  agents  which  are 
nothing  less  than  bribes  for  the  placing  of  goods  with 
retailers,  increases.  The  basis  for  this  opinion  must  be 
found  largely  in  the  fact  that  we  are  enacting  laws  to 
cut  out  the  trickster,  to  punish  the  man  who  steals  his 
rival's  trademarks  and  who  is  guilty  of  adulteration 
and  substitution.  Our  national  pure  food  law  has  done 
much  to  bring  out  information  regarding  these  dis- 
honest devices  of  unscrupulous  manufacturers  and 
dealers  of  foodstuffs.  But  pure  food  laws  are  not  new. 
It  is  the  enforcement  of  them  which  is  new.  We  are 
putting  the  patent  medicine  where  it  belongs.  Some 
of  the  things  we  have  learned  about  these  medicines 
make  rather  lurid  reading,  but  bear  in  mind  this,  that 
the  facts  we  have  found  out  about  them  have  come  out 


40  PRODUCTION 

in  a  compaign  to  stop  them.  The  value  of  the  beef 
trust  investigation  did  not  stop  with  the  meat  industry. 
The  number  of  big  business  estabhshments  whose  owners 
cleaned  them  up  carefully  for  fear  that  some  similar 
expose  might  come  to  them  is  much  greater  than  the 
pubhc  reahzes. 

We  are  just  beginning  to  take  measures  to  stop  one 
disheartening  form  of  business  competition,  that  is,  the 
grafting  commission.  In  business  I  sometimes  think 
that  to-day  everybody  in  business  wants  a  "  commission  " 
he  is  not  entitled  to  on  something.  In  the  fight  for  trade 
even  large  and  prosperous  houses  have  adopted  methods 
which  cannot  be  fairly  distinguished  except  for  the  lack 
of  bloodshed  and  physical  risk  from  the  methods  of  the 
burglar.  The  moral  difference  is  inappreciable  between 
the  burglar  who  enters  a  man's  house  by  ha\'ing  an  in- 
side accomplice  who  opens  a  door  or  a  window  and  the 
producer  who  gets  into  the  same  man's  business  estab- 
lishment down-town  by  bribing  his  buyer  or  pui'chasing 
agent  to  purchase  goods.  Now  we  must  admit  that  in 
recent  years  there  has  been  a  decided  increase  in  the 
number  of  so-called  commissions  of  the  illegitimate 
kind  offered  to  or  demanded  by  all  sorts  of  employees, 
purchasing  agents,  buyers  and  the  like  in  business 
estabhshments.  It  is  a  great  evil.  It  is  not  pecuUar  to 
producing  business.  It  permeates  the  whole  of  our 
commercial  and  financial  life.  Personally  I  am  inclined 
to  trace  the  increase  in  business  practices  of  this  kind  to 
the  tremendous  and  practically  unregulated  develop- 
ment of  what  may  be  described  as  the  fiduciary  prin- 


PRODUCTION  41 

ciple  in  our  modern  business  life.  The  corporation  as 
we  have  it  to-day  in  America  is  doing  the  greater  part 
of  our  business.  Men  are  employed  in  corporations 
practically  as  trustees  for  the  stockholders.  An  imper- 
sonal employer  consisting  sometimes  of  thousands  of 
individuals  scattered  broadcast  over  the  land  is  sub- 
stituted for  the  old  definite  personal  employer  near  at 
hand  who  watched  the  processes  of  the  business.  Our 
corporation  laws  have  thus  far  been  exceedingly  loose. 
Many  of  them  afford  extraordinary  and  immoral  pro- 
tection to  promoters  and  organizers  in  making  large 
and  highly  questionable  profits  at  the  expense  of  the 
investors  who  subsequently  put  the  actual  capital  into 
the  Company  by  buying  its  stocks  and  bonds.  The 
extraordinary  temptations  afforded  by  these  and  other 
opportunities  given  to  men  in  control  of  corporations 
has  had  its  natural  result.  There  has  grown  up  a  class 
of  misnamed  financiers  who  taking  advantage  of  these 
loose  laws  have  made  fortunes  through  essentially  dis- 
honest but  not  yet  criminal  practices.  As  it  becomes 
generally  known  by  the  subordinates  in  these  corpora- 
tions that  fortunes  are  being  made  in  this  way  by  their 
superiors  a  strong  temptation  is  created  in  the  rank 
and  file  to  follow  their  example.  The  railroad  purchas- 
ing agent  for  example,  who  sees  the  officers  and  directors 
above  him  making  profits  through  stock  and  bond  deals, 
through  construction  contracts  made  with  themselves 
through  dummies  and  the  like,  has  a  strong  temptation 
to  follow  the  example  of  his  superiors.  The  effect  of 
these  examples  is  not  limited  to  raihoad  or  corporate 


42  PRODUCTION 

business,  but  is  reflected  throughout  the  whole  range  of 
commercial  life.  The  buyer  must  have  a  commission  for 
treachery  to  his  employer ;  the  clerk  must  have  his  graft, 
and  so  on  up  and  down  the  line.  The  worst  of  it  is  that 
this  kind  of  business  has  gone  on  for  so  long  that  it  has 
become  a  sort  of  a  custom.  The  drastic  methods  which 
are  being  employed  are  needed  to  root  it  out.  Public 
opinion  must  be  still  further  aroused  against  this  prev- 
alent form  of  dishonor,  this  growth  of  treachery.  We 
are  all  of  us  responsible  for  the  lack  of  an  active  public 
conscience  on  this  matter.  We  must  quicken  the  in- 
dividual conscience.  We  must  make  commercial  bribery 
and  corporate  breach  of  trust  odious  through  public 
disapproval.  We  must  have  law  which  will  help  us,  and 
we  must  enforce  that  law.  In  New  York  a  statute  was 
passed  two  years  ago  on  this  subject.  The  Supreme 
Court  speaking  of  it  in  a  recent  decision  says  "The  cor- 
rupt practice  of  secretly  offering  bribes  to  servants, 
agents  and  employees  to  induce  them  to  place  contracts 
for  their  masters  or  employers  had  spread  to  such  an 
alarming  extent  in  this  State  that  its  viciousness  and 
dishonest  and  demoralizing  tendencies  attracted  the 
attention  of  the  Legislature  and  led  it  to  declare  it  to 
be  a  misdemeanor  to  give  or  receive  such  a  bribe." 
This  law  is  good  in  its  way  and  the  enforcement  of  it 
will  produce  good  results.  But  after  all  what  we  really 
need  is  law  adequate  to  reach  not  the  small  fry  but  the 
great  offenders  whose  success  and  example  cause  others 
to  offend,  college  endowing,  church  building  men  whose 
greatest  public  service  would  be  a  term  in  jail.     We 


PRODUCTION  43 

college  men  stand  disgraced  by  what  men  of  our  own 
class  do  with  their  education.  We  cannot  hope  to  make 
law  which  shall  make  such  peculation  impossible, 
which  shall  surely  punish  it  in  all  cases.  Social  ostra- 
cism is  a  better  weapon.  It  is  our  fault  that  we  do  not 
use  it.  You  remember  Emerson  says  ''Culture  corrects 
the  theory  of  Success."  The  test  of  the  value  of  Univer- 
sity training  for  the  Ufe  of  our  day  is  right  there.  What 
does  it  contribute  towards  the  higher  ideal  of  success? 
There  is  no  curse  to  a  country  like  the  increase  of  in- 
tellect without  character.  The  vital  problem  in  America 
to-day  is  the  definition  of  success.  No  man  who  reads 
or  thinks  can  doubt  the  growing  strength  of  the  moral 
forces  which  seek  to  define  that  word,  so  that  it  shall 
mean  only  something  to  which  an  honorable  man  can 
with  good  conscience  aspire. 

There  is  no  reason  for  losing  courage  or  getting  cynical. 
There  are  many  reasons  for  expecting  better  tilings. 
As  we  get  older  as  a  people,  business  tends  to  get  a  cer- 
tain stabihty  which  it  could  not  have  in  our  restless 
youth.  In  the  new  community  the  man  who  keeps  a 
grocery  to-day  may  start  a  bank  to-morrow.  He  is 
looking  for  the  main  chance.  He  is  not  sure  whether 
he  will  stay  in  the  place  or  in  the  business.  He  looks 
to  the  immediate  profit  and  takes  short  views  of  the 
business  itself.  He  is  looking  more  for  quick  money 
to  be  made  out  of  that  business  than  for  the  good  name 
of  the  business  itself.  As  we  settle  down  all  this  rather 
tends  to  change.  The  man  in  a  particular  business 
expects  to  stay  in  it  and  is  more  inchned  to  establish 


44  PRODUCTION 

permanent  relations  with  the  business  itself.  The  thing 
which  gets  more  important  as  a  business  asset  as  we  grow 
older  is  the  good  name  of  the  house. 

There  are  still  thousands  of  producers  to  be  sure  who 
rely  overmuch  on  the  great  American  idea  of  advertis- 
ing more  than  on  -the  quahty  of  their  goods.  We  know 
more  about  how  to  advertise  than  any  country  in  the 
world.  It  has  its  great  value  though  we  undoubtedly 
overdo  it  and  overlook  its  necessary  limitations.  Ad- 
vertising at  best  is  a  sort  of  industrial  fertilizer,  and  the 
best  of  fertiUzers  is  no  substitute  for  soil.  A  name  may 
become  widely  known  by  advertising,  it  can  become 
well  known  only  by  the  goods  themselves  and  the 
methods  by  wliich  they  are  sold.  The  permanent  good 
will  of  the  house  which  Lord  Eldon  defined  as  the 
prospect  that  the  old  customer  will  return,  is  and  must 
be  based  on  the  character  of  the  house  and  not  on  its 
advertising. 

Last  summer  in  London,  a  friend  of  mine  on  his  way 
home  one  day  saw  an  old  Sheffield  teapot  in  a  shop 
window.  He  took  a  look  at  it,  fancied  it,  and  told  the 
proprietor  to  send  to  liis  house  for  another  teapot  which 
he  had  but  did  not  Uke,  and  make  such  allowance  on  it 
as  was  proper  and  send  up  the  new  teapot  with  a  bill 
for  the  difference.  Of  course  he  did  not  know  what 
allowance  would  be  made  on  the  teapot  which  he  had, 
and  I  asked  him  if  he  was  not  taking  a  risk  in  doing 
business  in  this  way.  "Well,"  he  said,  "this  is  one  of 
these  old  London  shops.  They  have  been  on  that  spot 
for  a  hundred  and  fifty  years  and  they  have  a  repu- 


PRODUCTION  45 

tation  which  is  of  more  importance  to  them  than  an 
extra  profit  on  this  particular  transaction.  They  expect 
to  be  on  that  spot  for  a  hundred  and  fifty  years  more 
and  they  expect  to  see  me  again." 

Now  I  think  we  can  find  this  same  spirit  and  desire 
for  the  name  of  the  house  growing  with  us.  The  pro- 
ducer of  course  has  to  be  influenced  by  the  spirit  of  the 
retailer,  and  the  largest  and  most  substantial  retail 
houses  have,  with  few  exceptions,  this  motto,  "Make  a 
customer  rather  than  a  sale."  I  am  told  that  in  the 
largest  retail  house  in  this  country,  the  second  in  the 
world,  the  surest  road  to  dismissal  is  the  slightest  mis- 
representation of  goods. 

We  are  in  the  business  world  losing  that  discreditable 
admiration  for  "smartness"  —  that  cheap  combination 
of  shrewdness  and  guile  which  in  years  past  we  so  highly 
esteemed.  We  are  losing  our  regard  for  it  because  as 
we  take  longer  views  of  business,  as  we  consider  it  more 
as  a  permanent  occupation  rather  than  a  temporary 
and  changing  condition,  the  cheap  shrewdness  of  com- 
mercial trickery  proves  itself  a  failure.  Sohder  quali- 
ties are  to-day  needed  for  substantial  business  success. 
In  the  professions  something  more  than  money  is  essen- 
tial to  professional  eminence.  There  are  rich  shysters 
and  rich  quacks,  but  we  do  not  commonly  call  them 
successful.  We  withhold  the  word,  because  success  in 
the  profession  impUes  observance  of  the  set  standards 
of  professional  conduct.  In  the  same  way  standards 
are  being  set  in  the  commercial  world,  indirectly  per- 
haps and   often   almost   unconsciously   through   trade 


46  PRODUCTION 

guilds,  merchants'  associations,  credit  associations  and 
the  more  frequent  meeting  of  merchants  for  the  exchange 
of  views.  A  business  house  has  to-day  a  much  more 
definite  relation  to  the  trade  than  formerly.  Just  as 
the  rich  quack  or  the  rich  shyster  lacks  a  subtle  some- 
thing which  makes  success,  something  which  robs  him 
of  joy  in  his  work,  so  the  merchant  or  the  producer  who 
merely  makes  money,  loses  and  what  is  more  feels  that 
he  loses  something  essential  when  his  practices  have 
got  him  a  bad  name  in  the  trade.  How  much  oftener 
I  hear  used  phrases  which  mean  moral  standards  m  the 
business  world,  phrases  cast  off  carelessly  in  conversa- 
tion on  business  topics  —  so  and  so,  solid  old  house, 
high  class  concern ;  so  and  so,  big  house  but  a  bad  name 
in  the  trade.  These  simple  phrases  as  merchants  use 
them  mean  much,  for  they  indicate  the  development 
of  commercial  standards  of  success. 

We  are  often  discouraged,  no  doubt.  We  see  things 
and  we  read  things  which  seen  too  closely  make  us 
lose  that  perspective  needed  for  just  conclusions.  But 
after  all  as  our  vision  clears,  as  we  regain  that  perspective 
we  can  but  see,  surely  and  not  slowly  building  under 
our  eyes,  on  solider  foundations,  the  moral  framework 
of  American  business,  building  on  principles  which  recog- 
nize character  as  the  great  basis  of  credit  and  an  approxi- 
mation to  the  Golden  Rule  as  an  essential  part  of  the 
name  of  the  house. 


COMPETITION 


BY   HENRY   HOLT 


The  public  questions  now  receiving  most  attention  in 
America  —  those  of  the  labor  trusts  and  the  capital 
trusts  —  are  at  bottom  questions  of  competition. 

The  topic  is  of  peculiar  importance  to  us:  for  it  is 
universally  admitted  that  competition,  in  both  making 
money  and  spending  it,  is  fiercer  here  than  elsewhere. 
Our  average  man,  and  perhaps  stiU  more  our  average 
woman,  wants  to  outdo  her  neighbor  in  clothes,  housing, 
equipage,  entertainment  —  everything  that  money  can 
be  wasted  on;  and  the  competition  to  make  all  that 
money  is  as  fierce  as  the  competition  to  spend  it.  This 
is  largely  because  we  are,  as  the  London  Nation  justly 
calls  us,  "inordinately  free  from  the  conventions,  re- 
straints, distractions,  and  hypocrisies  of  the  older  civ- 
ilizations." 

For  comparison  we  need  glance  at  English  conditions 
alone:  those  in  Europe  generally  are  enough  like  them. 

When  an  Englishman  gets  comfortably  rich,  he  is 
apt  to  think  of  a  place  in  the  country,  and  a  local  magis- 
tracy, and  a  seat  in  Parliament;  but  in  America  wealth 
is  seldom  cared  for  as  giving  an  opportunity  to  serve 
the  community  or  to  gain  political  honors. 

47 


48  COMPETITION 

Rank,  too,  —  not  merely  the  title  that  a  rich  man 
may  hope  to  gain,  but  rank  derived  through  ancestry 
and  embedded  in  history  and  the  system  of  things,  — 
is  a  constant  reminder  that  wealth  is  not  for  him  the 
highest  earthly  good.  The  aristocratic  conditions  also 
carry  much  tradition  and  habit  of  culture  and  refine- 
ment, and,  it  does  not  seem  fanciful  to  beUeve,  thus 
afford  the  main  attraction  that  keeps  relatively  so  many 
more  Enghshmen  than  Americans  away  from  wealth- 
seeking,  and  in  pursuit  of  the  things  of  the  spirit. 

The  EngUsh  church,  too,  has  a  gi-eat  influence  in  this 
direction,  not  only  because  its  endowments  attract  men 
from  competitive  pursuits,  but  also  because  of  the  lei- 
sure it  gives  for  other  pursuits. 

The  American  attaches  Uttle  honor  to  pohtical  posi- 
tion, because  our  democracy  so  frequently  —  is  it  too 
much  to  say  so  generally?  —  gives  such  position  to  men 
with  small  claim  to  honor;  we  have  no  established 
church;  and  though  we  have  a  real  aristocracy,  it  is  only 
in  a  derived  sense:  for  it  does  not  rule,  and  the  general 
public  knows  nothing  about  it:  the  pubUc  knows  only 
our  sham  aristocracy  of  wealth. 

True,  our  imexampled  diffusion  of  education  fits  more 
men  here  than  elsewhere  to  enter  into  the  competition 
above  manual  labor ;  but  high  ambition  is  the  infirmity  of 
only  noble  souls;  not  one  man  in  a  thousand  cares  for  the 
triumphs  of  art,  or  letters,  or  poHtics,  or  even  of  war. 
Yet  every  man  is  a  snob,  and  there  is  no  American 
country  paper  now  without  its  social  column  —  even  out 
in  Cahfornia  and  Oregon  the  papers  copy  the  so-called 


COMPETITION  49 

society  news  from  the  New  York  papers;  and  in  them 
our  American  democrat  sees  ahnost  entirely  the  names 
of  people  he  has  heard  of  as  rich,  seldom  the  name  of 
anybody  he  has  heard  of  as  anything  else. 

In  short,  wealth  and  its  results  are  the  only  good  yet 
conspicuous  on  the  average  American  horizon.  Hence 
our  utterly  imexampled  rage  of  competition  for  it.  The 
American  view  of  the  subject  was  well  illustrated  by 
the  wife  of  one  of  the  great  captains  of  industry,  who 
lately  said,  "My  husband  hesitated  between  taking  his 
present  position  and  going  to  the  Senate.  If  he  had  gone 
to  the  Senate,  it  would  have  wrecked  his  career." 

Now,  in  this  fierce  competition,  the  sentiments  regard- 
ing it  are  paradoxical  to  a  degree  that  is  hardly  short  of 
amusing.  Nearly  everybody  is  half  the  time  crjdng  out 
against  competition,  and  the  other  half  demanding  it. 
Workingmen  try  to  suppress  it  in  labor,  and  to  enforce 
it  in  conmierce;  on  the  other  hand,  the  leaders  of  the 
industrial  world  are  trying  to  secure  it  in  labor,  and  to 
get  rid  of  it  in  conmierce;  while  the  leaders  of  the  regu- 
lative or  poUtical  world  are  trying  heartily  to  maintain 
it  in  conmierce,  and  are  comparatively  indifferent  to 
it  in  labor. 

Yet  there  is  a  consistency  prevading  all  these  seem- 
ingly paradoxical  conditions:  each  man  tries  to  get  rid 
of  competition  in  what  he  sells,  and  secure  it  in  what 
he  buys.  The  workingman  sells  labor,  and  wants  no 
competition  in  it:  so  he  forms  his  labor  trust,  and 
tolerates  all  the  other  labor  trusts.     But  he  buys  com- 


50  COMPETITION 

modities,  and  wants  all  possible  competition  in  them: 
so  he  attacks  the  capitalist  trusts.  The  captain  of  in- 
dustry buys  labor:  so  he  wants  all  possible  competition 
in  it,  and  therefore  disapproves  the  labor  trusts.  But  he 
sells  commodities,  and  therefore  wants  no  competition  in 
them :  so  he  forms  his  own  trust,  and  tolerates  the  other 
capitalists  trusts.  The  legislator,  administrator,  jurist, 
sells  neither  labor  nor  commodities,  and  buys  both:  so 
he  favors  competition  in  both,  but  tempers  his  advocacy 
of  it  in  labor,  by  a  tenderness  for  the  labor  vote. 

But  while  the  statesman,  so  far  as  he  is  a  patriot,  is 
above  competition,  so  far  as  he  is  a  politician  he  knows 
it  in  perhaps  its  widest  and  intensest  form,  and  against 
it  makes  his  pohtical  trusts:  the  great  national  parties 
have  many  features  in  common  with  the  trusts  — 
especially  the  RepubUcan  party  in  relation  to  the 
tariff;  and  though  the  state  and  county  organizations 
do  not  generally  control  plunder  enough  to  justify  close 
trust  organization,  the  city  political  gangs  do,  and 
generally  are  trusts,  Tammany  being  one  of  the  best 
organized  trusts  in  the  world. 

Even  the  professional  classes  are  not  without  wgani- 
zation  against  competition.  The  musicians'  trusts  are 
as  selfish,  and  apparently  as  foohsh,  as  the  hod-carriers' 
trusts;  and  even  the  bar  associations  and  the  medical 
societies,  while  their  real  object  is  the  intellectual  and 
ethical  advance  of  their  professions,  cannot  entirely 
escape  some  incidental  part  in  the  virtually  universal 
defenses  against  competition  —  cannot  escape  acting 
in  some  respects  as  trusts. 


COMPETITION  51 

Outside  of  all  these  classes  is  the  large  one  of  ex- 
changers of  commodities,  who  generally  deal  in  too  great 
a  variety  of  articles  to  be  tempted  into  trusts  of  their 
own.  Yet  they  are  all  interested  in  trans{X)rtation, 
and  therefore  naturally  object  to  railroad  trusts  and 
teamsters'  trusts.  To  other  trusts  they  are  compara- 
tively indifferent,  but  as  individuals  they  compete  as 
actively  as  anybody. 

As  competition  is  attempted  everywhere,  it  must  have 
its  merits;  but  as  it  is  also  everywhere  guarded  against, 
it  must  have  its  evils,  and  so  distinct  are  these  evils 
that  Mr.  S.  A.  Reeve,  the  author  of  the  only  book  on  its 
general  aspects  which  I  know  of,  apparently  thinks  that 
to  them  are  to  be  attributed  most  of  the  sufferings  that 
civihzed  humanity  endures.  With  Henry  George  and 
Edward  Bellamy,  he  belongs  to  a  school  —  or  section 
outside  of  the  schools  —  which  I  am  never  sm-e  that  I 
understand,  or  that  it  does;  but  if  I  understand  liim, 
he  holds  that  competition  does  not  naturally  inhere  in 
production,  but  is  bred  solely  by  exchange  and  other 
activities  not  directly  productive;  and  as  a  member 
of  the  noble  army  of  panacea-mxakers,  he  offers,  as  his, 
the  abolition  of  merchandizing,  banking,  and  many 
other  activities.  But  just  how  his  panacea  is  to  be 
administered,  he  shows  no  more  clearly  than  do  the 
other  inventors  of  schemes  for  the  millennium. 

Competition  is  certainly  not  an  invention  of  the  devil, 
unless  the  whole  order  of  nature  is  the  invention  of  the 


52  COMPETITION 

devil:  all  educated  people  know  that  competition  was 
ingrained  in  nature  long  before  there  was  merchandiz- 
ing, or  manufacturing,  or  individual  tinkering,  or  savage 
hunting  and  fishing,  or  savages,  or  beasts,  or  birds,  or 
fishes,  or  gastropods,  or  amoebas.  The  very  plants, 
when  probably  there  were  no  living  things  but  plants, 
competed  fiercely,  and  they  compete  still,  for  light  and 
heat  and  moisture.  To-day  they  are  even  competing 
for  territory,  with  streams  and  ponds,  and  actually  fill- 
ing them  up  and  obhterating  them.  They  compete 
with  men  for  the  possession  of  the  tropic  zone,  and  have 
often  beaten  them;  and  I  know  a  case  within  a  dozen 
miles  of  Chicago  where  they  competed  with  an  ice  com- 
pany for  the  possession  of  a  stream,  and  forced  it  to  use 
a  little  steamer  with  a  sort  of  mowing  machine  attached. 
They  hmited  the  area  of  the  company's  activities,  and, 
for  all  I  know,  drove  it  off  altogether,  though  now  a 
mightier  competitor  than  either  —  the  steel  corporation 
—  has  taken  possession  of  the  territory. 

When  animal  fife  began,  the  very  amoebas,  the  lucky 
ones  and  lively  ones  and  wise  ones,  floated  into  the  best 
places,  and  kept  the  unlucky  ones  and  lazy  ones  and 
stupid  ones  out.  When  tadpoles  and  fish  were  evolved, 
there  began  a  mighty  gobbling  up  of  the  weak  by  the 
strong;  later,  reptiles  —  big  Hzards  with  wings,  and  birds 
with  teeth  —  kept  up  the  game,  and  made  it  livelier, 
perhaps,  than  ever  before  or  since,  even  down  to  the 
days  of  Standard  Oil.  Some  time  along  there,  began 
the  most  interesting  of  all  competitions,  —  the  one  out 
of  which  has  been  evolved  all  that  men  most  care  for, 


COMPETITION  53 

and  perhaps  all  that  is  most  worth  their  caring  for,  — 
the  competition  because  of  sex.  In  the  struggle  of 
brutes  for  mates,  it  was  often  competition  in  mere  force ; 
but  there  was  also  higher  competition,  in  the  glow- 
worm's light,  and  the  bird's  song  and  plumage.  Wlien 
man  was  evolved,  it  grew  liigher  and  higher,  until  the 
competition  of  love  became  subject  for  art,  and  now 
does  more  than  anythmg  else  to  fill  the  opera  houses 
and  picture  galleries,  and  fiction  and  poetry,  and  the 
very  souls  of  the  world.  And  not  only  does  art  find  in 
competition  its  mightiest  theme,  but  art  itself  is  a  field 
of  competition  and  struggle  against  competition,  from 
rival  prima  donnas  down  to  the  musical  unions  already 
cited. 

There  is  nothing,  from  the  deepest  mine  to  the  tallest 
church,  —  or  even  the  tallest  skyscraper,  —  from  the 
dollars  a  man  pays  his  valet  to  the  devotion  he  pays  his 
lady-love,  that  is  not  informed  through  and  tlirough  by 
competition.  One  is  often  tempted  to  regard  it  as  the 
motive  power  of  the  world.  But  it  is  not:  it  is  only  an 
incident  of  the  motive  powers  —  often  an  exaggerated 
and  destructive  one,  often  not  rising  above  the  dignity 
of  a  foolish  one. 

Nevertheless,  with  the  evolution  of  intelligence,  there 
has  appeared  a  new  set  of  factors:  sympathy,  mercy, 
justice,  have  begun  to  restrain  and  narrow  competition, 
to  shape  popular  opinion,  and  even  to  express  themselves 
in  law.  This  new  stage  of  the  matter  to-day  absorbs  a 
wide  share  of  men's  interests  and  even  of  their  enthu- 


54  COMPETITION 

siasms;  and  these,  like  all  new  enthusiasms,  reach  many 
extremes  —  of  which,  later. 

With  competition  everywhere  else,  the  idea  of  wiping 
it  out  of  industry  must,  at  best,  be  a  counsel  of  per- 
fection, and  at  worst  the  idea  of  making  industry  cease. 
Rarely,  if  at  all,  can  there  be  an  effort  which  is  to  be 
paid  for,  that  does  not  tend  to  compete  with  every 
other  effort  which  is  to  be  paid  for.  Any  man  who 
heaves  coal  competes  with  every  other  man  who  heaves 
coal,  and  moreover  he  tends  to  lower  the  wages  in  coal- 
heavuig,  —  so  that  coal-heavers  will  tend  to  leave  that 
profession  and  compete  in  others. 

These  tendencies  are  not  always  realized  in  practice, 
because  the  individual  effort  is  too  small  to  overcome 
inertia  and  friction,  or  even  to  be  measured  by  our 
currency  and  other  instruments.  But  when  such  efforts 
"happen"  to  accumulate  in  any  one  direction,  the  effect 
of  the  aggregate  is  sometimes  important. 

As  a  rule,  the  only  way  to  get  rid  of  competition  is, 
as  already  intimated,  to  get  rid  of  work.  Does  not  the 
most  beneficent  of  inventions  inevitably  compete  with 
all  connected  vested  interests?  Can  the  merchant  who 
sells  the  best  goods  at  the  lowest  prices  continue  with- 
out competing  with  all  others,  and  getting  the  biggest 
business?  Do  not  the  men  in  the  most  unselfish  pur- 
suits inevitably  compete  for  the  best  places  in  them? 
Does  not  the  most  self-sacrificing  physician  compete 
for  the  best  practice?  Does  not  even  the  most  self- 
sacrificing  clergyman   compete   for  the  best  congi'ega- 


COMPETITION  55 

tion?  Neither  may  have  the  end  m  view,  but  if  he  puts 
forth  the  best  in  him,  is  not  the  end  inevitably  forced 
upon  him? 

So  unescapable  is  competition,  that  we  find  it  crop- 
ping up  in  spite  of  the  best  efforts  to  suppress  it.  For 
instance:  it  cropped  out  in  spite  of  the  opinion  of  the 
very  able  and  philanthropic  chairman  of  the  United 
States  Steel  Corporation,  when  he  became  impressed 
with  the  idea  that  steady  prices  would  be  a  good  thing; 
and  in  spite  of  the  fact  that  in  this  idea  he  was  cor- 
rect —  as  correct,  for  instance,  as  anybody  who  thinks 
that  a  clear  complexion  is  a  good  thing.  But  circum- 
stances are  frequent  where  a  clear  complexion  cannot 
be  had,  and  where  efforts  to  suppress  eruption  must  end 
in  disaster.  So  in  the  economic  world,  the  imevenness 
in  men's  judgments  —  their  making  too  much  of  one 
commodity  and  too  httle  of  another  —  renders  steadi- 
ness of  price  impossible,  and  even  the  fixing  of  a  nor- 
mal price  impossible  except  through  competition. 

The  only  rational  price  (if  the  versed  reader  will  be 
patient  with  a  httle  A  B  C)  is  that  where  the  demand 
will  just  absorb  the  supply;  and  this  price  will  be  found 
only  by  buyers  competing  for  product  when  demand  is 
good,  and  by  sellers  competing  for  custom  when  demand 
is  slack.  This  of  course  makes  high  prices  in  good  times, 
and  low  prices  in  bad  times;  the  only  way  to  get  rid  of 
high  prices  and  low  prices  is  to  get  rid  of  good  times  and 
bad  times;  the  only  way  to  get  rid  of  good  times  and  bad 
times  is  to  get  rid  of  crazes  and  panics;  and  the  only 


56  COMPETITION 

way  to  get  rid  of  crazes  and  panics  is  to  get  rid  of 
intemperance  in  both  hope  and  fear. 

But  temperance  is  as  remarkable  by  its  absence  from 
the  community  in  general  as  from  sundry  schools  of 
philanthropists;  nothing  is  more  characteristic  of  that 
virtue  than  the  ability  to  wait,  and  nothing  is  more 
characteristic  of  the  philanthropists  than  to  try  to  go 
faster  than  natural  law.  In  1897,  when  competition 
began  bubbling  to  raise  the  safety-valve  of  prices,  the 
benevolent  Steel  Corporation  smilingly  seated  itself 
upon  the  valve,  and  the  competition  had  to  break  out 
somewhere  else.  Among  other  evil  consequences,  the 
company  got  many  more  orders  at  the  prevailing  prices 
than  it  could  fill.  If  they  had  raised  prices,  and  so 
lowered  the  demand  to  equal  the  supply,  the  customers 
least  in  need,  or  least  able  profitably  to  use  steel,  would 
have  dropped  out,  and  the  neediest  and  ablest  would 
have  been  supphed;  the  most  important  demands 
would  have  been  satisfied,  and  nobody  would  have  felt 
a  right  to  complain.  Instead  of  this,  each  order  was 
filled  in  part,  the  most  important  and  necessary  enter- 
prises were  left  unfinished  along  with  the  least  impor- 
tant and  the  mistaken  ones;  nobody  was  satisfied; 
complaints  were  loud;  and  some  of  the  railroad  com- 
panies met  to  devise  their  own.  rail-factories. 

But  in  thus  suppressing  the  natural  and  salutary 
effects  of  competition,  the  Steel  Corporation  itself 
entered  into  competition  —  and  an  injurious  and  un- 
natural competition  —  with  the  weaker  companies; 
for,  as  it  would  not  raise  prices,  the  weaker  companies 


COMPETITION  57 

could  not  avail  themselves  of  the  good  times  to 
strengthen  themselves  against  bad  times,  and  against 
the  natural  tendency  of  any  great  competitor  to  gobble 
up  little  competitors  in  bad  times.  That  such  was  the 
deliberate  intention  of  the  Steel  Corporation,  however, 
I  do  not  believe,  for  I  have  faith  in  the  philanthropic 
intentions  of  its  chairman. 

But  the  story  is  not  ended:  later  in  that  year,  when 
the  bad  times  came,  in  his  desire  to  keep  prices  even,  he 
exercised  his  wonderful  powers  of  persuasion  to  prevent 
the  other  manufacturers  from  going  into  the  natural 
competition  of  lowering  prices,  and  so  the  steel  in- 
dustries were  kept  idle  or  partly  idle  for  many  months, 
xmtil  they  could  bear  the  strain  no  longer,  and  the  steel 
company  itself  had  to  lower  prices,  right  on  top  of  a 
declaration,  the  last  of  many,  that  it  was  not  going  to. 

This  is  the  most  recent,  and  perhaps  the  most  remark- 
able, of  the  great  illustrations  of  the  utter  impossibhty, 
as  men  are  now  constituted  and  industries  now  organ- 
ized, of  avoiding  competition. 

Yet,  as  already  intimated,  it  is  plainly  impossible 
that  a  feature  so  ingrained  in  nature  and  human  nature 
should  be  wholly  bad.  Now,  wherein  is  it  good,  and 
wherein  is  it  bad?  Like  everything  else  —  food,  wine, 
money,  even  such  ethereal  things  as  literature,  art,  or 
love,  or  religion  itself  —  it  is  good  within  bounds,  and 
bad  in  excess. 

Where  are  the  bounds?  As  in  everything  else,  at 
waste  —  waste  of  strength,  character,  time,  or  resources. 


58  COMPETITION 

Of  course  the  problem  of  what  is  waste  and  what 
reasonable  expenditure,  is  a  difficult  one,  but  that  does 
not  cancel  the  duty  of  solving  it. 

Everybody  who  reads  these  words  knows  that,  within 
bounds,  competition  tends  (if  union  leaders,  or  "wealthy 
malefactors,"  or  philanthropists,  will  let  it)  to  keep 
prices  reasonable  —  where,  as  already  said,  they  pre- 
serve the  equation  of  supply  and  demand ;  and  to  keep 
quahty  good,  and  supply  abundant  and  accessible. 
Everybody  knows,  too,  that  in  advertising,  competi- 
tion spreads  a  good  deal  of  useful  intelhgence,  though 
mixed  with  a  good  deal  that  is  superfluous  and  even 
false;  and  that  m  drmnming,  it  is  a  great  convenience 
and  saving  to  dealers  generally,  and  keeps  the  country 
hotels  and  railroad  accommodations  a  great  deal  better 
than  they  otherwise  would  be. 

A  benefit  not  as  obvious  as  those,  is  its  elimination 
of  the  unfit  from  industry.  There  are  always  hanging 
on  to  the  outskirts  of  business,  a  lot  of  incapable  men 
who  are  pestering  and  impeding  the  rest  of  the  world 
with  poor  goods,  poor  service,  unfulfilled  engagements, 
bankruptcies,  and  prices  broken  by  forced  sales.  The 
elimination  of  such  people,  and  confining  business  to 
the  more  capable,  is  a  good  service  to  the  community. 
And  it  is  even  a  good  service  to  the  ehminated  men;  for 
they  are  much  better  off  under  the  guidance  of  the 
capable  than  in  enduring  the  responsibihties,  anxieties, 
and  privations  inseparable  from  attempting  the  dis- 
charge of  duties  beyond  them.  Competition,  then,  so 
far    as    it    regulates    prices,    increases    products    and 


COMPETITION  69 

services,    and   eliminates   inefficiency,   is   an  unmixed 
good. 

And  here  we  approach  the  other  side.  The  competi- 
tion which  drives  out  the  incapable  is  a  very  different 
matter  from  the  competition  which  drives  out  the 
capable.  Effective  competition  of  course  destroys  com- 
petition elsewhere,  and  so  far  as  that  is  done  by  increas- 
ing goods  and  services,  the  good  produced  exceeds  the 
good  destroyed,  and  the  world  is  still  the  gainer.  But 
when  the  destruction  through  competition  is  an  end 
in  itself  —  when  one  man,  without  improving  product 
or  service,  sacrifices  values  and  efforts  merely  to  destroy 
another  man's  competition,  he  wastes  good  for  the  sake 
of  destro3dng  still  more  good. 

These  facts  are  obscured  because  such  competition 
may  bring  benefit  —  though  probably  only  a  specious 
benefit  —  to  the  aggressor ;  but  it  can  at  best  bring  the 
benefit  only  at  the  cost  of  his  victims  and  the  public, 
.  and  at  the  sacrifice,  in  the  aggressor  himself,  of  that  for 
which  no  money  can  compensate:  for  there  is  sure  to 
be  a  moral  waste.  Legitimate  competition  must  drive 
many  men  out  of  business  or  into  consohdation  with 
gigantic  rivals.  But  such  cases  are  apt  to  breed  a 
hardness  that,  as  I  know  very  directly,  once  led  a 
successful  competitor  to  remark  of  an  unsuccessful  one: 
"Oh,  he  was  easy  game!  " 

To  continue  with  the  unfavorable  side:  ruinous  com- 
petition in  prices  still  exists,  though  hardly  to  the 
extreme  of  fifty  or  sixty  years  ago,  when  frequently 


60  COMPETITION 

opposing  stage  lines  carried  their  passengers  free,  and 
steamboats  sometimes  not  only  carried  them  free,  but 
even  threw  in  meals.  We  do  not  often  hear  of  any- 
thing like  that  now,  though  in  my  own  trade  I  occa- 
sionally hear  rumors  of  school-books  given  away,  and 
ruinous  prices  paid  prominent  authors;  and  perhaps  any 
man  in  any  trade  may  hear  similar  rumors  in  it.  But 
whatever  foundation  there  may  be  for  such  rumors, 
there  seems  to  have  developed  regardmg  such  proceed- 
ings a  sense  of  shame  that  makes  men  slower  than  they 
were  a  generation  or  two  ago  to  indulge  in  them  openly. 

On  its  unfavorable  side,  too,  competition,  instead  of 
stopping  at  cheapening  by  simpler  processes  and  legiti- 
mate accounts,  tends  to  inferior  materials  and  labor. 
Though  in  ordering  large  works  or  large  supplies,  the 
practice  is  universal  of  trying  to  get  the  benefits  of 
reasonable  competition  by  seeking  bids,  people  have  of 
late  grown  so  afraid  of  excessive  competition  that  the 
right  to  reject  the  lowest  bids  is  reserved,  though  not 
always  exercised.  Moreover,  competition  tends  fright- 
fully to  run  to  waste,  and,  later,  paying  for  this  waste 
tends  to  make  prices  high,  quality  inferior,  and  com- 
modities scant  and  inaccessible. 

One  of  the  worst  wastes  is  in  advertising:  everybody 
uses  soap,  and  no  amount  of  advertising  can  make  people 
use  materially  more;  and  yet  those  who  use  the  finer 
kinds  probably  pay  more  for  having  it  dinned  into  them 
to  use  a  certain  brand,  than  they  pay  for  the  soap 
itself. 

I  want  to  use  another  illustration  from  my  own  trade. 


COMPETITION  61 

No  apology  should  be  needed  for  a  writer  thus  illustra- 
ting from  his  own  trade,  if  he  happens  to  have  one ;  and 
the  more  I  see  of  the  conditions,  the  more  I  incline  to 
believe  that  he  should  have  one,  and  that  writing  should 
not  be  a  trade.  If  it  ever  ceases  to  be  one,  however,  it 
will  be  when  trades  are  less  infested  by  foolish  compe- 
tition. But  the  interesting  question  of  literature  being 
a  trade  is  "another  story,"  and  possibly  may  be  the 
subject  of  another  essay;  though  one  would  hardly  be 
required  to  justify  the  writer  who  has  a  trade,  in  illus- 
trating from  it:  for  there  he  is  surer  than  anywhere  else 
of  the  first  essential  of  good  writing  —  knowing  what  he 
is  writing  about.  The  second  illustration  I  want  to 
make  from  my  trade  is  in  the  fact  that  the  country 
probably  pays  more  for  having  its  elementary  school- 
books  argued  and  cajoled  and  bribed  into  use,  than  for 
the  books  themselves.  Leaving  the  bribery  out,  the 
same  is  probably  true  of  high-school  books;  and  the 
increasing  amount  of  interviewing,  explanation,  com- 
parison, and  argument  regarding  college  books,  is  rapidly 
making  it  true  of  them. 

But  excessive  expenses  in  competition  are  worse  than 
wasteful  and  demoraUzing:  they  are  aggressive,  and 
provoke  retaliations  equally  objectionable.  The  com- 
petition in  economized  production,  faithful  service, 
reasonable  prices,  and  reasonable  and  truthful  pubUcity, 
is  simply  incidental  to  each  man's  doing  his  best  for 
himself;  but  beyond  this  point  it  begins  to  mean  each 
man's  doing  his  worst  for  his  neighbor.  Incidental 
competition  contains  what  truth  there  is  in  the  aphorism 


62  COMPETITION 

that  competition  is  the  life  of  trade;  but  aggressive 
competition  means  war,  waste,  and  death. 

Perhaps  the  most  trying  paradox  in  competition  is 
that  it  forces  the  wise  man  to  play  the  fool  when  his 
competitors  do,  or  suffer  for  his  wisdom.  When  he  is 
thus  between  Scylla  and  Charybdis,  what  ought  he  to 
do?  I  knew  a  man  who,  in  a  pecuUar  condition  of  his 
business,  when  a  collateral  business  was  making  inroads 
on  it,  was  often  met  by  the  proposition  from  those 
whose  custom  he  needed,  "If  you  won't  concede  so  and 
so,  I  know  a  man  who  will."  His  answer  was,  "That 
if  I  don't  make  a  fool  of  myself,  some  competitor  will, 
is  not  a  convincing  argument.  I'll  wait  till  he  does, 
and  the  fools  put  themselves  out  of  the  race."  And 
wait  he  did,  and  his  example  prevented  many  other  men 
from  making  fools  of  themselves,  and  did  much  to  reheve 
his  trade  from  a  pecuharly  imfair  and  abnormal  com- 
petition. 

In  competition,  the  call  to  do  the  brave  tiling  arises 
because  competition  is  war.  But  in  war  it  is  often  braver 
not  to  fight  than  to  fight,  and  the  bravest  fighting  has 
not  been  in  aggression,  but  in  self-defense  —  httle 
Holland  against  gigantic  Spain.  And  where  is  the  bully 
now?  Though  non-resistance  is  ideal  ethics,  it  should 
be  fundamentally  understood  that  ideal  ethics  apply 
only  to  an  ideal  world,  and  that  often  the  attempt  to 
introduce  them  into  a  practical  world  is  not  only  futile, 
but  wasteful  and  destructive. 

As  already  hinted,  the  point  at  which  competition 


COMPETITION  63 

becomes  abnormal,  forced,  and  aggressive,  is  when  it  is 
wasteful  —  when  the  cost  of  feeding  it  reduces  profits 
below  the  average  rate.  But  it  is  superficial  to  estimate 
profits  as  money  alone:  social  considerations  and  the 
gratification  of  personal  predilection  are  all  profits  in 
the  broad  sense.  For  ''profits"  substitute  satisfactions, 
and  the  general  proposition  holds. 

This  seems  to  hark  forward  to  an  ideal  —  that  it  is 
for  the  greatest  good  of  the  greatest  number  that  all 
men's  fortimes,  estimated  in  satisfactions,  should  be 
equal;  and  perhaps  the  most  pronounced  individuaUst 
would  not  object  to  that  as  an  ideal,  but  his  contention 
would  be  that  it  is  only  by  the  freest  opportunity  for 
individual  development  that  men's  fortunes  can  be- 
come equal;  and  individual  development  is  competition. 

The  wastes  of  exaggerated  competition  of  course 
prompt  the  question  whether  men  would  not  be  better 
off  if,  instead  of  competing,  they  were  cooperating  —  if 
instead  of  fighting  each  other,  even  incidentally,  they 
were  helping  each  other.  As  far  as  human  nature  has 
yet  been  evolved,  the  change  is  not  possible  to  any  great 
extent,  and  the  question  is  too  comphcated  to  admit  of 
an  answer  in  the  present  state  of  human  intelligence. 
Yet  there  are  some  httle  bits  of  experience  in  the  co- 
operation of  small  groups,  and  also  in  occasional  middle 
conditions  where  purposed  competition  has  ceased, 
though  cooperation  has  hardly  begun.  But  they  are 
conditions  of  unstable  equiUbrium  which  must  soon 
disappear. 


64  COMPETITION 

I  would  illustrate  this  point,  too,  from  my  own  trade, 
despite  my  having  done  so  already.^  Such  a  condi- 
tion prevailed  in  the  upper  walks  of  the  publishing 
business  from  about  1865  to  1875,  and  contained  sev- 
eral features  that  may  not  be  altogether  uninteresting. 

In  the  first  place,  it  was  a  brief  realization  of  the 
ideals  of  philosophical  anarchism  —  self-regulation  with- 
out law.  There  was  no  international  copyright  to  pro- 
tect an  American  publisher's  property  in  an  English 
book;  yet  an  intelUgent  self-interest,  among  a  perhaps 
exceptional  body  of  men,  performed  the  functions  of 
law.  By  mutual  consent,  when  a  publisher  had  a  con- 
tract with  an  English  author  for  a  book,  or  even  in  the 
absence  of  a  contract,  when  a  pubUsher  made  the  first 
annomicement  of  an  intention  to  print  an  English  book, 
no  other  American  pubUsher  of  standing  would  print 
it  in  opposition.  This  usuage  was  called  the  courtesy 
of  the  trade,  and  for  about  ten  years  that  courtesy  was 
seldom  violated.  Moreover,  the  courtesy  was  extended 
to  the  relations  of  pubUshers  with  American  authors. 
During  that  period,  no  publisher  of  standing  would  any 
more  try  to  get  away  another's  client  than  a  lawyer  of 
standing  would  try  to  get  away  another's  client,  or  a 
physician  another's  patient.  And  under  those  condi- 
tions the  trade  prospered  more,  on  the  whole,  than  it 
has  under  contrary  conditions. 

If  that  absence  of  direct  purposeful  competition  could 
have  been  maintained,  the  prosperity  could  have  been 
maintained.     But  it  depended,   as  I  have  intimated, 

>  Atlantic  Monthly,  November,  1905,  p.  589. 


COMPETITION  65 

upon  the  trade  happening  to  be,  at  that  time,  in  the 
hands  of  men  of  exceptional  character;  and  the  results 
of  peaceful  ways  were,  as  has  been  the  case  in  all  liistory, 
tempting  to  the  outside  barbarian.  If  the  Harpers  were 
making  money  for  the  author  and  themselves  out  of  a 
book  by  George  Ehot,  the  Appletons  or  the  Scribners 
would  not  print  it;  but  soon  an  enterprising  printer  in 
the  West  awoke  to  the  fact  that  there  was  no  law  to 
prevent  his  printing  it  in  a  cheaper  edition,  or  to  compel 
him  to  pay  royalty  to  the  author;  and  print  he  did,  right 
and  left.  His  example  was  soon  followed  by  others, 
and  the  peaceful  and  profitable  conditions  of  philosophi- 
cal anarchism  were  once  more  demonstrated  impossible 
of  duration  in  the  present  state  of  human  nature.  As 
always  when  men  have  tried  to  get  along  without  law, 
law  had  to  be  resorted  to,  and  the  International  Copy- 
right Law  of  1891  was  the  result. 

It  is  interesting  further  to  note  that  the  spirit  of 
aggressive  competition,  wliich  grew  up  after  the  period 
of  philosophical  anarchy,  filled  the  business  with  waste 
in  advertising,  over-bidding  for  authors,  and  over-con- 
cession of  discounts  and  credits  to  customers;  until, 
a  few  years  ago,  the  competition  reached  extremes 
which  were  at  last  realized  to  be  wasteful  and  ruinous, 
and  are  gradually  being  curtailed.  But  the  curtailments 
have  made  almost  as  great  demands  on  courage,  and  on 
the  capacity  to  see  futui-e  advantages  in  present  sacri- 
fices, as  were  required  to  make  possible  the  decade  of 
philosophical  anarchism;  and  the  evolution  of  another 
period  of  non-competitive  peace,  economy,  and  mutual 


66  COMPETITION 

courtesy  will  probably  be  as  slow  as  the  evolution  of 
human  nature. 

And  yet  during  that  Arcadian  period,  or  rather  at 
about  its  falling  away,  there  were  many  to  claim  that 
the  established  pubUshers  were  in  a  combine  or  trust 
(though  the  actual  word  was  not  then  current),  and  that 
the  only  way  a  man  could  enter  the  business  was  the 
predatory  way.  Yet  in  a  Ubel  suit  instituted  by  one 
of  the  predatory  people  against  the  Evening  Post,  for 
calling  him  a  pirate,  I  heard  a  successful  publisher  on 
the  witness  stand  declare  that  he  had  entered  the  busi- 
ness about  the  beginning  of  the  period  referred  to,  had 
never  reprinted  another  publisher's  book,  and  had  never 
been  the  object  of  aggression  by  another  publisher,  but 
on  the  contrary  had  always  been  treated  by  the  others 
with  courtesy,  and  often  had  the  benefit  of  their  experi- 
enced advice. 

It  should  be  further  observed  that  during  this  absence 
of  purposeful  competition,  incidental  competition  was 
inevitably  going  on  all  the  while.  At  no  time  under  my 
observation  was  there  more  emulation  in  economy  of 
method  and  quahty  of  product.  During  that  period 
was  established  the  great  advance  in  the  quality  of  book- 
making  which  distinguishes  the  American  books  of 
to-day  from  our  crude  products  before  the  middle 
sixties. 

So  far,  then,  as  inferences  regarding  the  whole  indus- 
trial field  can  be  drawn  from  a  brief  and  exceptional 
experience  in  a  relatively  insignificant  portion  of  it,  and 
that  a  portion  with  some  strong  characteristics  outside 


COMPETITION  67 

of  pure  industrialism,  it  would  be  a  fair  inference  to 
conjecture  that  all  forms  of  industry  will  gain  in  peace 
and  prosperity  from  such  advances  in  human  nature  as 
will  do  away  with  purposeful  and  aggressive  competi- 
tion, and  that  the  incidental  competition  of  emulation 
in  methods  and  product  will  still  be  great  enough  to 
develop  the  effort  on  which  progress  must  depend. 

These  truths  regarding  the  industrial  world  were  long 
since  reahzed  by  the  superior  minds  in  the  professional 
world.  The  high-class  medical  practitioner  does  not 
try  to  get  away  his  colleagues'  patients;  does  not  make 
his  charges  lower  than  those  of  other  physicians;  derives 
no  profit  from  his  discoveries,  but  throws  them  open  to 
the  world;  does  not  tout  for  practice,  and  make  Ms 
customers  pay  the  expenses  of  the  touting;  never  dis- 
regards the  call  of  mercy;  and  tempers  his  fees  to  the 
shorn  lamb,  or  rather  lets  the  lamb  go  unshorn.  High- 
class  lawyers,  too,  have  restricted  their  competition  to 
rendering  the  best  service  they  know  how,  and  have 
refrained  from  direct  efforts  to  get  each  others'  clients, 
and  even  from  advertising  for  clients.  Now  it  could 
not  have  been  merely  what  are  usually  termed  moral 
considerations  that  long  ago  evolved  these  codes  of 
professional  ethics.  These  men  have  been  intelligent 
enough  to  reaUze  that  undue  competition  must  in  the 
long  run  be  no  more  productive  than  dog  eating  dog, 
and  that  peace  and  dignity  are  better  worth  having  than 
superfluous  money. 

The  commercial  world  may  be  slowly  feeling  its  way 


68  COMPETITION 

toward  such  conditions,  but  even  in  the  professional 
world  they  are  as  yet  but  conditions  of  unstable  equilib- 
rium; lately  om*  terrible  American  commercialism,  and 
love  of  ostentation  and  luxury  and  superficial  equality, 
have  been  doing  much  to  send  professional  ethics  to  the 
dogs.  This,  however,  should  not  be  laid  entirely  to  the 
mere  spirit  of  competition;  it  must  be  laid  largely  to 
the  moral  breakdown  that  has  followed  the  weakening 
of  the  old  religious  sanctions,  and  that  will  last  until  we 
get  some  new  sanctions  from  our  increasing  knowledge 
of  nature. 

But  the  professional  world  and  the  publishing  world 
have  not  been  alone  in  attempts  to  avoid  the  evils  of 
competition.  For  some  years  past,  people  in  trade 
after  trade  have  found  that  they  were  competing  until 
they  were  making  no  money.  Ever3rwhere  excessive 
enterprise  or  excessive  avarice,  and  excessive  lack  of 
foresight  and  character,  were  defeating  themselves. 
At  last,  many  of  the  leaders  of  the  respective  trades 
began  to  meet  to  agree  upon  prices,  discounts,  some- 
times number  of  drummers,  and,  for  all  I  know,  amount 
of  advertising.  But  there  was  too  much  "enterprise," 
or  too  little  character,  to  make  the  agreements  last: 
honest  men  held  up  prices  while  knaves  undersold  them. 

It  was  at  length  realized  that  the  only  effective  plan 
was  to  put  a  whole  industry  under  a  central  control. 
Hence  the  trust.  This  tended  not  only  to  stop  waste, 
but  to  economize  management  and  office  administration ; 
and  it  was  urged  that  part  of  these  great  economies 


COMPETITION  69 

could   be  given   to   the   public  through  reductions  in 
prices. 

This  was  the  view  of  people  who  had  things  for  sale. 
But  the  vast  majority  who  had  nothing  for  sale,  and  the 
demagogues  who  sought  the  votes  of  this  majority, 
called  these  agreements  schemes  to  benefit  each  particu- 
lar trade  at  the  expense  of  the  community  —  and  said 
that,  competition  being  destroyed,  the  public  would  be, 
in  the  matter  of  price,  at  the  mercy  of  the  combine. 
And,  despite  the  wise  and  economical  features  of  such 
arrangements,  the  Sherman  law  and  its  progeny  have 
made  them  illegal.  The  crude  new  legislation  has 
seldom  attempted  to  attack  the  evils  in  such  a  way  as 
to  leave  room  for  the  possible  benefits;  and  has  been 
largely  futile  and  destructive.  As  a  sample,  it  is  now 
promoting  the  destruction  of  the  bookstores:  I  am  just 
mourning  the  fall  of  one  of  the  oldest  and  best,  in  my 
little  university  town  in  Vermont.  The  department 
stores  are  killing  the  booksellers  by  selling  the  most 
popular  new  books  at  cost,  and  less  than  cost,  for  the 
sake  of  attracting  custom  for  other  things.  Wlien  the 
publishers  got  together  and  tried  to  stop  this,  their 
counsel  told  them  that  the  Sherman  law  would  not  per- 
mit them  to  do  it  by  Umiting  competition  among  them- 
selves, but  would  permit  them  to  try  to  limit  it  among 
others,  by  refusing  to  sell  to  dealers  who  cut  prices. 
But  the  courts  have  recently  decided  that  even  this  aid 
to  the  merchandizing  of  culture  has  been  restricted  by 
our  sapient  law-makers  to  copyright  books:  Homer  and 
Shakespeare  are  beyond  the  pale  of  their  assistance. 


70  COMPETITION 

The  law  of  Illinois  exempts  day-laborers  from  the 
tutelage  it  imposes  on  the  book-trade.  In  other  words, 
it  has  exempted  from  its  provisions  the  trust  whose 
actions  have  been  the  most  extreme,  and  have  been 
most  enforced  by  extreme  methods  —  such  as  with- 
holding the  general  supplies  of  food  and  fuel;  obstruct- 
ing transportation';  and  boycott,  violence,  and  murder. 
Moreover,  the  demagogues  are  agitating  for  the  labor 
trust's  exemption  from  the  United  States  Trust  laws; 
and  since  the  Supreme  Court  has  pronounced  against 
the  boycott,  the  labor  trusts  are  also  agitating  for 
legislation  to  make  them  superior  to  the  effect  of  the 
decision, — superior  to  everybody  else, — to  permit  them 
to  restrict  competition  by  unhmited  coercion. 

And  for  some  of  this  legislation  there  is  not  the  excuse 
of  difficulty.  The  Illinois  law  is  probably  as  bad  a 
case  of  demagoguery  and  class  legislation  as  was  ever 
enacted. 

My  writing  of  that  paragraph  was  interrupted  by  the 
sneezing  of  one  of  my  boys  who  has  hay  fever.  The 
growing  paternaUzation  of  our  government,  as  illus- 
trated in  some  features  of  the  pure  food  act,  has  pre- 
vented my  obtaining  for  him  the  medicine  wliich  cured 
one  of  his  parents  and  one  of  his  grandparents. 

Will  people  ever  learn  that  legislation  is  the  most 
difficult  and  dangerous  of  the  arts,  and  that  it  is  best, 
where  not  clearly  impracticable,  to  leave  the  cure  of 
social  ills  to  the  courts?  There,  not  only  is  the  experi- 
ence of  the  race  digested  and  appUed  by  learning  and 
training,  but  it  is  applied  only  to  the  case  in  hand, 


COMPETITION  71 

instead  of  (to  give  the  metaphor  a  twist  or  two)  being 
sent  out  crude  and  unbroken  to  run  amuck. 

There  can  be  Uttle  doubt  that  men  could  make  more 
by  helping  one  another  than  by  fighting  one  another; 
but,  as  already  said,  in  any  state  of  human  nature  that 
we  can  foreseee,  the  appUcation  of  non-competitive  or 
cooperative  poUcies  to  the  commercial  world  cannot  in 
strictness  be  a  practical  question.  When  we  imagine 
Utopias,  as  always  when  we  try  to  go  very  far  beyond 
our  experience,  we  land  in  paradoxes  and  contradictions ; 
and  when  we  try  to  reahze  Utopias  in  the  present  state 
of  morahty,  we  class  ourselves  with  the  ignorant  or  the 
purblind.  Attempts  to  reaUze  ideals  that  are  merely 
imagined  have  probably  been  the  most  wasteful  and 
destructive  of  all  human  efforts. 

Yet  often,  as  in  mathematics,  much  is  gained  for 
practical  questions  by  reasoning  from  impossible  hy- 
potheses, so  long  as  we  regard  them  as  impossible.  We 
can  at  least  ask  a  more  or  less  skeptical  question  or  two 
regarding  Utopia.  For  instance,  if  no  time  is  to  be 
wasted  in  competition,  what  are  the  advertisers,  drum- 
mers, revenue  officers  excluding  foreign  products,  and 
other  people  now  performing  waste  labor,  going  to  do 
for  a  living?  It  seems  reasonable  to  assume  that  they 
will  simply  produce  twofold  —  fourfold  —  useful  things 
that  the  world  is  now  doing  without.  And  perhaps 
something  even  wiser  than  that  —  there  may  not,  after 
all,  be  produced  so  many  more  things:  for  in  Utopia 
competition  in  consuming  useless  things  will  have  dis- 


72  COMPETITION 

appeared.  Nobody  will  have  useless  clothes,  food, 
wines,  jewels,  equipages,  servants,  simply  because  his 
competitors  have  them  —  each  man  will  be  content 
with  what  he  reasonably  needs;  and  in  a  cooperative 
world  he  will  spend  his  then  superfluous  powers  in 
cooperating  with  the  efforts  of  his  less  able  neighbors 
to  get  needed  things. 

Yet  more  —  in  Utopia  men  will  have  time  to  devote 
their  efforts  to  the  industry  we  now  most  conspicuously 
neglect  —  saving  our  souls;  there  will  be  time  for  geniuses 
to  write  their  best,  and  restore  literature,  instead  of 
hurrying  and  over-working  for  superfluous  and  even 
hurtful  things;  and  time  for  ordinary  men  to  read  and 
think;  to  listen  to  music,  and  make  it;  to  look  at  pic- 
tures, and  do  a  little  with  cameras  and  water-colors  on 
our  own  account;  to  enjoy  architecture,  and  learn  enough 
of  it  to  have  some  intelligent  say  about  making  our  own 
homes;  time  to  potter  over  our  gardens;  time  to  travel; 
and  even  time  to  go  fishing,  at  least  with  Izaak.  A 
woman  to  whom  I  read  this  said,  "And  we'll  have  time 
to  have  time."  It  is  needless  to  say  that  she  lived  in 
New  York. 

More  important  still,  in  the  non-competitive  Utopia, 
there  will  be  time  to  keep  well,  time  to  die  at  a  decent 
old  age,  and  time  to  go  decently  to  each  other's  funerals. 
But  before  that,  and  most  important  of  all,  there  will 
be  time  to  prevent  our  having  to  feel,  when  we  do  go  to 
funerals,  perhaps  the  bitterest  regret  of  all:  "If  I  only 
had  had  more  of  that  friend  while  he  was  here!" 

But  all  this  is  Utopia.     Each  man  has  his  own  way 


COMPETITION  73 

to  Utopia,  and  wise  men  know  that  they  will  not  in  one 
lifetime  get  far  on  any  way.  But  they  also  know,  and 
know  it  better  each  day,  that  there  are  ways  in  that 
direction;  and  that,  while  the  competition  incidental  to 
honest  emulation  tends  to  keep  those  ways  open,  the 
competition  born  of  greed  and  envy  tends  to  keep  them 
closed. 


CREDIT  AND  BANKING 

BY  ALONZO  BARTON  HEPBURN 

The  morals  and  ethics  of  credit  and  banking,  which  I 
am  asked  to  discuss,  differ  in  no  respect  from  the  morals 
and  ethics  which  determine  the  proper  com*se  of  action 
in  any  and  all  other  vocations.  People,  however,  do 
seem  to  have  varying  moral  standards,  which  they  apply 
in  current  affairs,  and  this  accoimts  for  much,  if  not  most 
of  the  corruption  that  exists  at  the  present  time  in 
pubHc  and  corporate  affairs.  For  instance,  a  man  who 
would  be  scrupulously  honest  in  deahng  with  another 
man,  will  take  advantage  of  the  unseen  stockholders  in  a 
corporation  or  the  unseen  citizen  pubUc,  and  treat  them, 
in  a  most  shameful  manner.  It  may  be  lack  of  courage 
to  face  an  adversary  and  do  him  wrong,  that  prompts 
honest  conduct  in  the  one  case;  it  may  be  that  the 
wrong  in  the  second  case,  done  in  the  absence  of  the 
parties  wronged  and  distributed  among  many  sufferers, 
thus  making  detection  less  hkely,  emboldens  one  to  do 
what  present  criticism  or  impending  detection  would 
restrain.  The  moral  turpitude,  whether  latent  or  ac- 
tive, must  have  existed  the  same  in  either  case,  and 
this  recalls  that  the  best  petition  in  the  Lord's  Prayer 
is  "Lead  us  not  into  temptation."  The  best  way  to 
keep  people  from  wrong-doing  is  to  screen  them  from 

74 


CREDIT  AND  BANKING  75 

temptation,  and  in  banking  the  best  insurance  against 
temptation  is  the  possession  of  well-developed  banking 
conscience. 

A  leading  authority  says:  "The  principles  of  banking 
are  deductions  from  facts.  The  science  of  banking  is 
a  collection  of  these  principles.  ...  In  the  physical 
sciences,  as  in  chemistry,  we  often  discover  a  principle 
and  then  apply  it  to  a  practical  end.  But  in  banking 
and  in  political  economy  generally,  we  first  collect  our 
facts  and  then  ascend  from  facts  to  principles."  Still 
more  definite  is  the  commercial  law  —  the  law  merchant, 
as  it  is  commonly  called  —  which  is  the  custom  of  mer- 
chants and  bankers;  custom  makes  the  law,  and  it  is  this 
law  that  the  courts,  in  the  absence  of  statute  law  gov- 
erning the  matter,  proclaim  and  enforce.  Customs 
change  with  the  evolution  of  business;  hence  the  law 
changes  and  hence  the  principles  which  govern  con- 
servative banking  also  change.  Bankers  now  engage 
with  perfect  propriety  in  transactions  which,  as  to 
magnitude  and  character,  would  have  amazed  bankers 
of  past  generations.  And  yet,  while  the  banking  prin- 
ciple may  change  in  the  evolution  of  business,  the  ethi- 
cal principles  upon  which  banking  principles  are  based, 
do  not  and  cannot  change.  A  banker's  contact  with  the 
public  may  respond  to  varying  business  methods,  but 
his  moral  responsibihty  is  ever  the  same. 

According  to  Gilbart,  a  banker  need  not  be  a  man  of 
talent,  but  he  should  be  a  man  of  wisdom.  Talent,  in 
the  sense  in  which  it  is  ordinarily  used,  implies  a  strong 
development  of  some  one  faculty  of  mind.    Wisdom 


76  CREDIT  AND  BANKING 

implies  the  due  proportion  of  all  faculties.  A  banker 
need  not  be  a  poet  or  philosopher,  a  man  of  science  or 
literature,  an  orator  or  a  statesman,  —  he  will  possibly 
be  a  better  banker  without  any  of  these  distinctions. 
It  is  necessary  that  he  possess  a  large  portion  of  that 
practical  quaUty-  which  is  commonly  called  conunon 
sense.  He  must  possess  intuition,  a  keen  insight  not 
only  into  commercial  affairs,  but  into  the  character  of 
the  people  with  whom  he  deals.  He  must  be  a  worker, 
for  knowledge  and  exact  information  are  indispensable 
for  the  safe  conduct  of  his  business,  and  as  in  aU  affairs 
of  mankind,  intellectual  abiUty  of  a  high  order  is  the 
only  guaranty  of  marked  success. 

Credit  and  Character  in  Commerce 

Commercial  banking  is  the  banking  that  finances 
commerce  and  trade.  A  commercial  banker  has  less 
excuse  and  greater  opportunity  for  wrong-doing,  per- 
haps, than  men  engaged  in  any  other  vocation,  because 
he  handles  money  which  is  easily  misappropriated.  A 
banker  deals  in  credit;  his  business  consists  in  swapping 
a  well-known  for  a  less-known  credit.  A  customer, 
whom  he  knows  to  be  responsible,  presents  his  note, 
which  the  banker  discounts,  in  exchange  giving  the 
customer  currency  of  the  realm,  or  it  may  be  an  instru- 
ment representing  the  bank's  credit,  which  is  available 
in  paying  a  debt  or  making  a  purchase  either  at  home 
or  in  any  foreign  country,  as  the  customer  may  desire. 
The  customer's  credit,   known  and  good  only  in  his 


CREDIT  AND   BANKING  77 

immediate  vicinage,  is  resolved  into  a  credit  known 
and  good  throughout  the  world.  Or  it  may  be  that  the 
local  customer  has  received  an  obligation  payable  at 
some  far-distant  point.  It  is  not  a  well-known  credit 
in  that  locality  and  therefore  not  usable.  The  banker 
takes  it,  gives  a  local  credit  therefor  and  proceeds  to 
collect  the  same  by  usual  course  of  exchange. 

A  banker  presents  to  the  public  his  financial  respon- 
sibihty,  his  capital,  his  moral  responsibility,  his  char- 
acter, and  solicits  business.  Most  of  his  advertising 
is  voluntary  and  for  the  pm-pose  of  attracting  busi- 
ness, but  much  of  it  is  compulsory  and  for  the  purpose 
of  giving  the  pubUc  information ;  hence  a  bank  is  required 
to  make  and  pubUsh,  under  oath,  periodic  reports  of 
condition,  and  is  regularly  examined  by  Government 
accountants.  He  first  asks  the  public  to  give  him 
credit,  to  have  confidence  in  his  honesty  and  abihty 
and  to  entrust  him  with  its  funds,  as  evidenced  by  de- 
posits and  by  the  foreign  and  domestic  exchange  that 
constitute  the  volume  of  a  bank's  business.  He,  in 
turn,  extends  credit  to  his  customers. 

It  follows  that  a  bank's  credit  is  a  matter  of  constant 
inquisition  on  the  part  of  the  pubUc,  and  in  turn  the 
banker  becomes  a  "father  confessor"  as  to  material 
matters,  to  such  people  as  desire  to  make  use  of  the 
bank's  funds.  Corporations  and  large  enterprises  are 
required  to  have  their  affairs  examined  and  certified  by 
public  accountants;  such  auditing  is  necessary  to  estab- 
hsh  their  credit.  Individuals  are  required  to  make 
statements,   showing  in  detail  their  assets  and   their 


78  CREDIT  AND   BANKING 

liabilities,  both  direct  and  contingent,  as  a  basis  of  credit; 
that  is  to  say,  as  a  basis  for  borrowing  money  or  pur- 
chasing commodities. 

The  most  intimate  and  confidential  relation  exists 
between  the  banker  and  his  clientele,  and  confidence 
obtained  under  such  circumstances  and  for  such  pur- 
poses would  render  the  betrayal  of  the  same  perfidious. 

Narrow  Range  of  Rightful  Risks 

In  the  popular  laical  view  of  banking  the  element  of 
risk  is  largely  present.  As  a  matter  of  fact,  the  field  of 
justifiable  risk  is  a  surprisingly  narrow  one. 

A  good  banker  seeks  to  make  money,  not  out  of  his 
customers,  but  along  with  them.  By  loaning  a  cus- 
tomer funds  to  carry  on  a  successful  business  venture, 
the  banker  makes  his  interest  while  the  customer  makes 
his  profit.  In  a  sense  they  are  partners,  but  with  this 
important  difference,  —  the  most  a  banker  can  make 
is  the  agreed  rate  of  interest,  while  the  customer's 
profits  may  reach  a  very  large  percentage,  dependent 
upon  the  price  of  commodities,  market  conditions  and 
various  influences.  The  manufactiuer  or  merchant 
may  derive  great  profit  from  the  enhancement  in  value 
of  his  stock  in  trade,  and  of  course  the  reverse  may 
prove  true.  The  most  a  banker  may  hope  for  is  that  his 
receivables  will  be  paid,  at  their  face  value,  at  matm'ity. 
There  is  no  appreciation;  anything  out  of  the  ordinary 
course  that  happens  to  a  banker  is  always  to  his  dis- 
advantage. It  is  right,  therefore,  that  he  exact  the  best 
of  credit  or  good  collateral. 


CREDIT  AND  BANKING  79 

General  trade,  however  conservatively  conducted, 
has  speculative  features,  and  success  depends  measur- 
ably upon  ability  to  correctly  forecast  the  trend  of 
prices.  A  banker  should  not  loan  funds  to  be  used  for 
an  improper  purpose,  nor  to  be  used  in  what  is  Ukely 
to  prove  an  unsuccessful  venture. 

A  crop  failure,  whole  or  partial,  puts  the  credit  of  an 
agricultural  community  in  jeopardy.  Depression  or 
stagnation  in  any  branch  of  trade  or  manufacture  would 
have  the  same  effect  upon  any  locaUty  depending  upon 
such  industry  for  sustenance  or  prosperity. 

A  man  asking  credit  is  entitled  to  a  "yes"  or  "no." 
A  bank  has  a  moral  obligation,  which  in  practice  has  all 
the  force  of  law,  to  make  loans  for  reasonable  amounts 
to  people  in  good  credit,  who  patronize  the  bank.  In 
order  that  decisions  may  be  intelUgently  reached,  the 
manager  of  a  large  bank  must  understand  economic 
conditions  throughout  the  world.  That  involves  a  study 
of  the  economic  journals  of  the  different  countries,  a 
close  tab  on  current  events,  a  cable  touch  with  leading 
correspondents  in  metropolitan  centers  everywhere. 

Banking  Responsibilities  now  World-Wide 

Bankers'  responsibiUties  are  as  wide  as  the  world's 
market.  Steam  has  brought  all  parts  of  the  world  into 
close  contact  and  electricity  has  welded  them.  It 
would  require  but  two  or  three  hours  at  most  for  a  New 
York  banker  to  make  a  payment  for  a  customer  in  any 
part  of  the  world.     The  elements  that  determine  the 


80  CREDIT  AND   BANKING 

question  of  gold  exports  or  imports  are  interest  on  the 
money  dm-ing  the  time  it  is  in  transit,  express  or  trans- 
portation charge,  insurance  and  abrasion.  Long  before 
the  swiftest  ocean  greyhound  can  transport  the  precious 
metal,  the  cable  transfer  has  anticipated  the  event  and 
the  gold  arrives  -only  to  consummate  a  prearranged 
transaction.  If  you  will  recall  the  various  kinds  of 
business  that  reach  into  our  large  banks,  you  will  reaUze 
the  importance  and  the  labor  involved  in  properly 
mastering  this  field.  Such  demands  have  a  tendency  to 
broaden  a  man  and  bring  out  the  best  there  is  in  liim. 

How  manifold  the  fiduciary  functions  of  a  banker 
are,  can  be  appreciated  only  when  one  analyzes  his 
relations  (if  the  business  be  incorporated)  to  the  share- 
holders or  partners  —  those  whose  capital  is  employed; 
to  employees,  upon  whose  morals  and  efficiency  his 
success  depends;  to  the  depositors,  who  entrust  to  him 
their  surplus  means;  to  the  borrowers,  whose  business 
success  may  be  dependent  upon  his  action;  to  com- 
petitors and  correspondents;  to  the  entire  community, 
whose  welfare  and  progi-ess  may  be  affected  by  the 
conduct  of  his  business;  and  finally  (if  the  influence 
of  his  bank  becomes  extended)  to  the  State  and  nation, 
whose  credit  structure  is  necessarily  so  largely  based 
upon  that  of  the  great  banking  interests. 

By  this  enumeration  of  the  characteristics  of  commer- 
cial banking  and  the  qualifications  of  commercial 
bankers  I  seek  to  impress  upon  you  the  responsibilities 
pertaining  to  the  business  and  devolving  upon  the  men 
engaged  in  the  same.    They  exercise  a  twofold  trust  — 


CREDIT  AND  BANKING  81 

a  public  trust  as  to  funds  deposited  with  them,  and 
their  relations  to  the  public  generally;  a  private  trust 
in  their  relations  to  their  mdividual  patrons  and  the 
confidential  knowledge  which  they  obtain  as  to  their 
private  affairs.  While  they  have  gi-eater  opportunity 
for  doing  wrong,  they  have  less  excuse.  They  should 
be  judged  by  a  higher  standard  than  the  average  busi- 
ness vocation  and  visited  with  more  severe  condem- 
nation in  case  of  wrong-doing. 

Concrete  Duties  of  Commercial  Banking 

Let  us  turn  to  the  obUgations  involved  in  working 
out  the  concrete  problems  of  banking  practice. 

I  used  to  think  that  banking  must  be  the  easiest  of 
business  —  opening  at  10  a.m.  and  closing  at  3  p.m.,  it 
could  not  be  very  laborious,  and  autocratically  making 
or  refusing  loans,  entertaining  or  discarding  proposi- 
tions, appealed  strongly  to  my  self-complacency.  Ex- 
perience taught  me  that  ten  to  three  were  the  hours  to 
the  public;  that  every  banking  day  was  and  must  be 
complete  in  itself;  that  all  accounts  must  be  proven 
and  balanced,  if  it  took  until  three  o'clock  the  next 
morning.  The  fact  that  accuracy  and  certainty  must 
prevail  exercises  a  most  wholesome  influence  upon  clerks. 
Character,  accuracy  and  certainty  are  the  working  capi- 
tal of  young  men. 

I  found  that  people  who  kept  accounts  in  the  bank 
had  claims  upon  it,  had  a  banking  equity,  which  means 
that  they  were  entitled  to  a  certain  amount  of  loans 


82  CREDIT  AND  BANKING 

corresponding  to  the  value  of  their  accounts.  I  found, 
also,  that  those  claims  always  materialized  when  money 
was  difficult  to  obtain.  I  found  that  a  bank  President, 
instead  of  being  an  autocrat,  was  a  servant,  that  he 
must  gauge  the  probable  demands  of  his  customers, 
presage  the  condition  of  the  money  market,  and  so 
determine  the  character  and  maturity  of  his  investments 
as  to  be  able  to  supply  the  needs  of  his  patrons  and  do 
it  with  a  smile,  do  it  in  a  way  to  command  their  con- 
fidence and  protect  their  interests,  and  retain  their 
business. 

Every  business  has  its  lean  season  and  its  flush  season. 
Banks  in  the  cotton  belt  are  borrowers  during  the  mak- 
ing and  marketing  of  the  cotton  crop.  When  the  crop 
is  sold  and  returns  realized,  banks  in  the  cotton  belt 
have  plentiful  funds  and  maintain  large  balances.  So 
with  every  business.  If  a  man  had  money  enough  to 
finance  his  business  during  the  period  of  greatest  de- 
mand he  would  necessarily  have  a  large  amount  of  idle 
funds  during  his  easy  period.  Such  a  condition  would 
impair  his  profits.  The  function  of  commercial  banks 
is  to  equalize  conditions  by  loaning  him  at  certain 
periods  and  utihzing  his  deposits  at  other  periods,  for 
the  benefit  of  others.  All  businesses  do  not  require 
loans  at  the  same  time ;  all  sections  do  not  require  loans 
at  the  same  time.  Banks  with  diversified  accounts, 
covering  all  sections  of  the  country,  supply  the  money 
demands  of  one  section  with  the  overplus  of  another, 
and  thus  the  money  of  the  country  is  kept  constantly 
at  work  in  (he  interest  of  commerce.     What  our  large 


CREDIT  AND  BANKING  83 

metropolitan  banks  do  for  the  country  as  a  whole,  the 
smaller  banks  do  for  their  local  customers,  acting  as  a 
clearing  house  for  their  community. 

Other  Types  of  Banking 

There  are  many  other  kinds  of  banking  beside  com- 
mercial banking.  Savings  banks  are  designed  to  serve 
people  of  moderate  means,  who  are  not  themselves  in 
position  to  make  judicious  investments.  They  deal 
with  the  widow  and  the  orphan  and  hence  their  officers 
are  under  the  highest  moral  responsibihty.  The  amount 
of  individual  deposits  is  limited,  upon  which  conserva- 
tive dividends  or  interest  is  allowed.  The  investment 
of  savings-bank  funds  is  carefully  regulated;  provisions 
to  prevent  panicky  withdrawals  of  funds  may  be  en- 
forced. Savings  banks  in  the  aggregate  are  perhaps 
the  greatest  investors  in  bonds  that  we  have ;  still  they 
are  a  negligible,  rather  than  an  active  factor  in  current 
finance. 

Trust  companies,  so  far  as  their  business  is  of  a  trust 
character,  especially  with  reference  to  estates,  are 
quite  as  much  outside  of  the  currents  of  commerce,  as 
is  the  business  of  savings  banks.  But  at  least  75  per 
cent  of  the  business  done  by  trust  companies,  so-called, 
is  banking  business  pure  and  simple,  and  should  be 
governed  by  the  same  ethical  principles. 

A  most  important  business  is  done  by  quite  a  different 
type  of  financial  institution,  known  as  banking-houses. 
Promotion  and  syndicate  banking  is  usually  originated 


84  CREDIT  AND   BANKING 

and  consummated  by  them.  They  are  not  chartered 
by  the  Government,  do  not  receive  deposits,  consuna- 
mate  their  business  with  their  own  funds  and  such  funds 
as  are  voluntarily  entrusted  to  them  by  their  syndicate 
associates.  They  are  bound  to  honorable  conduct  and 
square  dealing,  but  manifestly  are  to  be  judged  by  a 
somewhat  dififererit  standard.  They  put  their  own 
funds  at  risk  and  their  associates  join  them  after  ex- 
amining and  passing  favorably  upon  each  specific  trans- 
action. 

Underwriting  Syndicates  and  Promotion 

It  is  the  colossal  character  of  modern  financing  of 
corporate,  municipal  and  national  undertakings  that  has 
called  into  prominence  the  syndicate  system  of  secur- 
ing the  requisite  funds.  The  Pennsylvania  Railroad, 
for  instance,  with  its  great  terminal  enterprise,  whereby 
it  enters  the  heart  of  the  City  of  New  York  and  tunnels 
under  both  the  Hudson  and  East  rivers,  has  been  ask- 
ing funds  of  the  pubhc  at  various  times,  in  amounts 
ranging  from  $40,000,000  to  $100,000,000. 

The  Union  Pacific,  with  its  ambitious  extensions, 
the  Northern  Pacific  and  Great  Northern,  not  to  mention 
other  large  systems  of  railway,  as  w^ll  as  our  large 
industrial  enterprises,  in  their  proper  development,  ask 
sums  of  money  too  large  for  any  one  banking-house  to 
finance,  except  in  cooperation  with  others.  Such 
cooperation  is  tersely  termed  a  syndicate.  It  is  neces- 
sary that  some  concern,  as  syndicate  managers,  arrange 


CREDIT  AND  BANKING  85 

an  underwriting  and  distribution,  in  order  to  insure  the 
placing  of  loans  of  the  class  I  have  described. 

Promoters  of  courage  and  sagacity  are  entitled  to  the 
credit  of  accomplishing  some  of  our  greatest  and  most 
beneficent  works.  The  New  York  subway  is  a  good 
example  of  what  may  be  consunmiated  by  men  capable 
of  grasping  a  problem  and  foreseeing  the  result,  despite 
popular  belief  that  failure  is  inevitable.  The  fact  that 
there  are  many  visionary  promotions,  rascally  pro- 
motions, as  well  as  syndicates  conceived  in  sin  and  born 
in  iniquity,  emphasizes  the  necessity  for  great  conserv- 
atism and  careful  discrimination.  Condemn  the  wrong 
and  punish  the  wrong-doer,  but  remember  that  the  gi'eat 
requirements  of  modern  business  undertakings  can  only 
be  met  by  the  syndicate,  and  that  promoters  are  the 
pioneers  of  progi'ess. 

General  Dependence  on  Commercial  Banks 

There  are  mortgage  banks,  loaning  exclusively  upon 
real  estate,  and  other  speciahzed  features  of  banking, 
all  important  in  themselves  and  all  contributing  to 
round  out  and  make  most  effective  the  general  scheme 
and  instrumentalities  for  financing  the  industries  of  a 
great  people,  but  the  sub-strata,  the  backbone  of  all 
banking,  from  which  all  other  features  radiate  and  to 
which  they  hark  back  in  time  of  stress,  is  commercial 
banking.  The  savings  bank,  the  mortgage  bank,  the 
trust  company,  when  they  need  to  liquidate  any  of  their 
securities,    have    recourse    to    the    commercial    banks. 


86  CREDIT  AND  BANKING 

The  assets  of  commercial  banks  consist,  or  at  least  they 
should,  of  Hquid  obligations.  From  15  per  cent  to  25 
per  cent  of  their  deposits  are  required  by  law  to  be  kept 
in  cash,  the  amount  varying  according  to  the  locaUty 
of  the  institution.  A  large  line  of  call-loans  is  carried 
by  banks  in  New  York  and  other  large  cities  —  as  a 
second  reserve. 

Banks  generally  throughout  the  coimtry  depend  upon 
their  matmities  for  means  to  meet  current  demands. 
A  careful  study  of  the  business  of  their  customers  en- 
ables bankers  to  know  the  time  and  period  and  probable 
amount  of  their  customers'  borrowings  and  they  gauge 
the  maturity  of  their  loans  and  discounts  to  meet  such 
demands.  Interior  banks  have  recom-se  to  borrowing 
from  metropoUtan  banks  in  order  to  supplement  their 
resources  and  equalize  their  demands.  Metropolitan 
banks  have  no  borrowing  resource,  except  where  the 
condition  of  foreign  exchange  enables  them  to  use  their 
credit  abroad. 

The  assets  of  a  commercial  bank  should  at  all  times 
be  in  a  Uquid  condition,  ample  cash  reserves  —  short- 
time  maturities,  four  to  six  months'  maturities,  which 
represent  the  turnover  in  current  business.  The  note 
of  the  farmer  or  planter  is  paid  with  the  proceeds  of  his 
marketed  crop;  the  note  of  the  manufacturer  or  mer- 
chant is  paid  with  the  proceeds  of  his  goods  sold,  for 
which,  payments  come  about  in  the  regular  course  of 
business  —  the  notes  of  importers,  who  are  dealing  with 
foreign  countries,  are  paid  with  the  proceeds  of  goods 
imported,  supplemented,  perhaps,  by  a  movement  of 


CREDIT  AND   BANKING  87 

gold.  A  bank's  assets,  predicated  upon  such  business, 
are  constantly  being  paid  and  renewed,  and  hence  the 
money  power  of  the  institution  is  always  at  the  com- 
mand of  the  management.  Such  banks  may  lose  from 
unwise  granting  of  credit  at  times,  but  can  never  go  far 
wrong. 

Unsound  Banking 

I  have  described  good  banking,  now  let  us  glance  at 
that  which  is  more  or  less  reprehensible. 

A  banker  cannot  know  what  the  checks  and  drafts, 
called  exchanges,  which  pass  through  his  bank,  repre- 
sent. He  can  and  should  know  that  the  individuals 
and  corporations  who  open  accounts  with  him  are 
reputable  and  engaged  in  legitimate  enterprise,  not  only 
free  from  dishonor,  but  serving  a  proper  demand  on  the 
part  of  the  community,  for  then  they  are  likely  to  suc- 
ceed. 

A  bank  should  not  make  loans  to  its  officers  save  in 
very  exceptional  cases,  and  then  with  collateral  such  as 
to  place  the  loan  beyond  criticism.  A  banker's  judg- 
ment in  making  loans  should  be  untrammeled  and  his 
standard  of  credit  should  not  be  lowered  nor  his  inde- 
pendence of  action  impaired  by  the  difficulty  in  refusing 
to  others  credit  similar  to  that  which  he  had  aheady 
taken  for  himself.  False  credits  are  seldom  extended 
where  the  interest  of  the  bank  and  the  financial  ability 
to  repay  on  the  part  of  the  borrower,  are  the  only  ques- 
tions at  issue.     In  banking,  as  in  morals,  we  often  go 


88  CREDIT  AND  BANKING 

astray,  more  from  want  of  firmness  than  from  want  of 
knowledge,  and  the  firmness  of  a  bank  officer  should  not 
be  lessened  by  a  use  of  the  bank's  funds  on  his  own  part. 

Statistics  of  failed  National  banks  show  that,  in  the 
great  majority  of  cases,  failure  was  brought  about  by 
an  undue  use  and  abuse  of  the  bank's  funds  by  the 
insiders  —  officers  and  directors.  National  banks  are 
prohibited  from  investing  in  stocks  of  any  corporation, 
and  that  policy  should  govern  all  commercial  banks. 
Stock  represents  the  ownership  of  property — the  title- 
deed,  as  it  were  —  whether  the  same  be  railway,  indus- 
trial or  other  stock.  The  earnings  of  a  corporation 
determine  the  dividends  upon  its  stock,  which  may  be 
much  or  nothing.  No  speculative  account  or  under- 
writing with  reference  to  stock  should  therefore  be 
entertained. 

Commercial  banks  may  buy  bonds,  because  they  are 
receivables,  obligations  for  the  payment  of  a  specified 
sum,  upon  a  date  certain,  with  fixed  amount  of  interest. 
They  are  usually  long-time  obhgations,  and  no  com- 
mercial bank  should  invest  in  such  securities  more  than 
that  portion  of  its  deposits  which  partake  of  the  nature 
of  savings  bank  deposits.  As  we  have  seen,  the  magni- 
tude of  some  of  our  corporate  borrowings  is  too  great 
for  any  one  banking-house  to  finance.  The  borrowings 
of  our  cities,  states  and  general  government  furnish 
additional  instances.  A  commercial  bank  may,  there- 
fore, within  modest  limits,  participate  in  a  bond  syndi- 
cate and  carry  the  bonds  received  until  they  are 
absorbed  by  the  bank's  clientele. 


CREDIT  AND   BANKING  89 

Wliat  a  bank  may  not  with  propriety  do,  the  bank's 
officers  should  not  do.  Tempting  underwriting  is  fre- 
quently offered  to  bank  officers  to  predispose  them 
favorably  to  regard  loans  to  the  syndicate  or  people 
interested  therein.  While  the  promoter  is  an  essential 
factor  in  modern  industrial  development  and  the  syn- 
dicate simply  means  the  union  of  many  to  carry  out 
imdertakings  manifestly  too  great  for  one,  they  are 
nevertheless  both  under  suspicion  and  should  be  ap- 
proached only  with  greatest  caution  and  conservatism. 
The  amount  of  securities,  conceived  by  promoters, 
underwritten  by  syndicates,  associated  with  great  names 
and  born  into  the  commercial  world  during  the  past 
few  years,  and  sent  forth  to  solicit  the  confidence  of 
the  investing  pubUc,  presents  an  appalling  total;  securi- 
ties in  good  part  representing  honest  enterprise,  securi- 
ties in  good  part  also  designed  to  anticipate  the  pros- 
perity of  the  future,  and  by  foisting  them  upon  an 
unwary  public,  yield  to  their  sponsors  a  present  price 
far  in  excess  of  their  present  worth;  securities,  pardon 
the  use  of  the  word,  in  good  part  also,  conceived  in  in- 
iquity for  no  other  purpose  than  to  defraud  the  public 
of  such  moneys  as  they  might  be  tempted  by  specious 
promise  and  simulated  truth  to  invest. 

We  hear  much  of  corporate  greed  and  oppression,  of 
grinding  monopoly,  of  the  severity  of  taxation  —  their 
hardships  are  light  compared  with  the  wrong  done 
through  get-rich-quick  concerns  from  the  bucket-shop 
up  to  the  over-capitahzed  promotion  which,  by  in- 
genious falsification,   is  worked   off  upon   the   public. 


90  CREDIT  AND   BANKING 

The  financial  loss  is  enormous,  but  the  moral  loss  is^ 
greater;  the  gambling  instinct  has  been  fostered,  the 
modest  profits  of  normal,  legitimate  enterprise  rendered 
unattractive  and  the  moral  tone  and  standard  of  the 
community  greatly  abased,  and  to  the  lasting  criticism 
of  the  administration  of  our  criminal  law,  such  swindlers 
are  seldom,  if  ever,  brought  to  trial,  let  alone  to  punish- 
ment. 

Morale  of  a  Bank's  Working  Force 

Passing  now  to  the  responsible  personnel  of  banking 
operations,  I  take  up  the  principles  that  govern  in  the 
selection  of  its  officers,  its  clerical  force  and  even  its 
clientele.  Bookkeeping  groups  under  appropriate  gen- 
eral heads,  few  in  number,  all  the  items  constituting 
the  assets  of  a  bank,  and  per  contra  all  the  items  consti- 
tuting a  bank's  liabilities.  The  balance  is  a  registry 
of  results;  by  it  the  officers  are  enabled  to  see  at  a  glance 
the  bank's  condition  as  to  resources;  intelligent  action 
is  thus  rendered  easy.  As  to  the  correctness  of  the 
balance  sheet  a  banker  must  depend  upon  the  efficiency 
of  his  system.  Duplicate  and  triplicate  checks  may  be 
provided  for,  which  would  require  a  conspiracy  of  three 
to  swindle  without  immediate  detection,  and  would 
render  detection  in  the  near  future  most  probable.  I 
know  of  no  way  of  preventing  the  President  of  a  bank 
from  swindling  the  same,  if  he  wants  to,  and  in  every 
system,  however  elaborate,  a  point  is  reached  where  its 
efficiency  depends  upon  individual  honesty.    We  can- 


CREDIT  AND   BANKING  91 

not  have  anything  better  than  men  and  hence  the  prime 
necessity  of  making  character  a  controlling  influence  in 
selecting  the  working  force  of  a  bank  from  President 
down,  and  also  making  character  the  final  test  in  a 
bank's  clientele,  both  borrowers  and  depositors.  No 
person  should  be  accepted  as  a  depositor  or  customer, 
except  he  satisfactorily  passes  the  most  rigid  scrutiny 
as  to  character;  and  no  corporate  business  should  be 
taken  on  unless  it  be  free  from  criticism,  and  with  good 
management  bids  fair  to  succeed.  Then  it  should  be 
taken,  however  small  it  may  be.  The  best  accounts  are 
those  which  grow  with  the  bank  from  small  to  large 
proportions. 

A  paternal  influence  should  be  exercised  over  the 
clerical  force  and  wrong-doing  should  be  made  so  diSi- 
cult  and  so  sure  of  exposure,  as  to  reheve  employees 
from  temptation,  especially  during  the  formative  period 
of  their  character.  Banks  employ  bonding  companies 
to  guaranteee  them  against  loss  from  the  dishonesty 
of  employees.  These  companies  keep  close  tab  on  the 
movements  of  the  entire  force  and  report  not  only  con- 
duct which  is  bad,  but  also  that  which  has  a  bad  ten- 
dency. The  party  under  criticism  is  then  talked  to  in 
a  way  to  show  our  interest  in  his  welfare.  He  also 
reaUzes  that  he  is  under  supervision. 

Instances  of  Dereliction 

This  instance  once  fell  under  my  observation,  when  I 
was  a  bank  examiner:  A  bank  had  a  loan  secured  by 


92  CREDIT  AND   BANKING 

warehouse  receipts.  The  bank  had  a  suspicion,  amount- 
ing aknost  to  conviction,  that  these  warehouse  receipts 
were  fraudulent.  They  pressed  the  party  for  pay- 
ment, giving  him  at  different  times  some  of  these  re- 
ceipts, upon  which  he  procured  loans  elsewhere.  This 
bank  received  its  pay,  and  when  the  exposure  came  other 
banks  were  found  to  have  loans  upon  the  same  receipts, 
which  proved  to  be  forged,  and  of  course  lost  their 
money.  Upon  the  surface,  this  seems  shrewd,  sharp 
management.  Morally,  this  bank  was  a  party  to  pro- 
curing loans  upon  forged  documents  in  order  to  effect 
payment  of  its  own  loans. 

In  another  instance  a  bank  had  loaned  upon  munic- 
ipal bonds,  which  proved  to  be  forged.  Investigation 
practically  satisfied  the  bank  of  tliis  fact.  They  also 
pressed  for  payment.  Through  the  exertions  of  their 
creditor,  they  were  instructed  to  deUver  these  bonds 
to  another  banker,  upon  payment  of  their  loan.  Upon 
discovering  the  worthless  character  of  the  bonds,  the 
second  banker  brought  suit  against  the  first,  claiming 
that  they,  knowing  or  believing  the  bonds  to  be  worth- 
less, became  a  party  to  the  fraud  by  failing  to  disclose 
their  information.  The  suit  was  settled  out  of  court, 
and  it  would  seem  that  the  financial  responsibility  was 
quite  as  apparent  as  the  moral  responsibility  in  this 
case. 

It  sometimes  happens  that  people  establish  a  credit 
for  no  other  purpose  than  eventually  faihng  and  making 
money  by  effecting  a  settlement  for  a  small  percentage 
of  what  they  owe.     Banks  are  prone  to  accept  such 


CREDIT  AND   BANKING  93 

settlement  as  the  easiest  or  probably  best  way,  from  a 
money  standpoint,  instead  of  prosecuting  the  swindlers. 
They  invite  such  swindling  by  their  passiveness.  The 
creditors  are  widely  distributed,  no  one  feels  hke  taking 
the  responsibility,  and  the  enforcement  of  criminal  law 
is  lax  and  dilatory  throughout  our  country  in  respect 
to  swindling  transactions.  Unblushingly  false  and 
fraudulent  statements  are  made  in  prospectuses  and 
circulars  sent  broadcast  over  the  land;  they  appear 
constantly  in  the  columns  of  newspapers,  for  the  pur- 
pose of  inveigling  the  public  to  invest  m  properties  of 
more  than  questionable  standing  and  value.  However 
disastrous  such  investments  may  prove,  prosecution 
seldom  or  never  follows.  The  great  fortunes  made  and 
paraded  in  the  press  by  lucky  speculators,  the  fortunes 
made  by  the  advance  in  values,  as  for  instance  ore 
properties,  the  conspicuously  large  fortunes  of  some  of 
our  people,  have  excited  a  speculative  mania  that  has 
taken  possession  of  our  whole  people.  Money,  by  some 
lucky  stroke,  is  the  desideratum,  and  the  extent  to  which 
people  in  the  humblest  walks  of  life  are  being  con- 
stantly swindled  through  the  instrumentality  of  false 
advertisements  and  false  circulars,  is  little  dreamed  of 
by  people  generally.  Tlie  pubHc  needs  awakening  upon 
this  subject;  men  should  be  made  financially  and  crimi- 
nally responsible  for  all  statements  made  for  the  purpose 
of  inducing  any  one  to  purchase.  And  the  men  who 
send  out  these  chculars  call  themselves  bankers.  Wall 
Street  brokers  are  catalogued  as  "bankers,"  and  I  wish 
to  impress  upon  you   the  necessity  of  discriminating 


94  CREDIT  AND   BANKING 

between  these  classes  of  so-called  bankers  and  those  who 
serve  the  commercial  and  trade  needs  of  the  country. 

The  Trusteeship  of  Banking  Resources 

All  that  has  been  said  with  reference  to  the  charac- 
ter, honesty  of  purpose  and  sincere  business  endeavor 
on  the  part  of  the' clientele  of  a  bank,  applies  with  equal 
or  greater  force  to  the  bank  itself  and  the  officers  and 
management.  Sobriety,  dignity,  and  a  proper  respect 
for  the  conventions  of  society  and  the  demands  of  pub- 
lic sentiment  should  characterize  the  management.  By 
setting  a  good  example  they  fortify  their  position  and 
reinforce  their  demand  of  Hke  conduct  on  the  part  of 
their  patrons. 

The  highly  fiduciary  character  of  bank  management  is 
patent  in  the  large  proportion  of  deposits  in  the  total 
resources.  Twenty  per  cent  of  the  total  resources  of 
the  National  banking  system  belongs  to  the  stock- 
holders; 80  per  cent  belongs  to  the  pubUc  in  the  shape 
of  deposits,  and  in  other  forms  incident  to  the  business 
of  banking.  It  follows  that  80  per  cent  of  the  banking 
power  of  these  institutions  is  owned  by  the  public ;  they 
are,  then,  eminently  pubhc  institutions.  The  growth 
of  fiduciary  responsibihty  and  accountabiUty  to  the 
public  on  the  part  of  bankers  is  pronounced,  and  justly 
so.  By  exercising  a  wise  discrimination  as  to  character, 
they  tend  to  raise  the  moral  tone  of  the  whole.  By 
exercising  a  wise  discrimination  as  to  investments,  they 
have  it  in  their  power  to  measurably  restrain  bad 
adventures.    Their  officers  sustain  fiduciary  relations 


CREDIT  AND  BANKING  95 

to  the  public  of  the  highest  character  and  should  be 
judged  by  the  highest  standards.  When  rendering 
judgment  the  public  should  be  careful  to  differentiate, 
between  commerical  banking  and  the  various  forms  of 
busmess  enterprise  conducted  by  people  generally  styled 
''bankers." 

Banks  dishonor  and  prosecute  their  customers  when 
they  default  in  payment  of  obligations,  and  surely  they 
should  be  most  punctiUous  in  pa3rment  of  their  own. 
By  far  the  greater  part  of  a  bank's  obligations  to  pay 
is  what  they  owe  depositors.  The  commerce  of  this 
country  can  only  prosper  by  having  it  understood  and 
believed  both  at  home  and  abroad  that  depositors  in 
our  banks  can  withdraw  their  funds  at  any  time  and  in 
any  form  —  exchange  or  gold  —  which  they  may  re- 
quire. This  is  indispensable  alike  to  the  expansion  of 
our  trade  and  the  development  of  our  industries,  and 
also  to  the  maintenance  of  our  credit  and  character  as 
a  nation. 

This  statement  may  properly  be  regarded  as  critical 
in  the  extreme,  in  view  of  the  fact  that  practically  all 
of  the  banks  of  the  country  suspended  currency  pay- 
ments for  several  weeks  during  the  closing  month  of 
last  year.  A  wrong  was  done  and  a  grievous  fault 
exists,  and  since  we  are  discussing  the  ethics  of  banking, 
it  may  be  in  order  to  inquire  wherein  the  fault  lay. 

Lessons  of  the  Crisis  of  1907 

The  total  currency  in  circulation  January  1,  1908, 
was  $3,078,989,298;  the  total  bank  deposits  in  all  banks 


96  CREDIT  AND  BANKING 

at  the  same  time  were  $13,835,223,558.  Hence  it  is 
manifest  that  if  all  depositors  sought  to  withdraw  all 
their  deposits  at  one  time  it  would  be  impossible  for  the 
banks  to  pay  them.  In  fact  the  deposits  in  the  City  of 
New  York,  of  the  banks,  trust  companies  and  savings 
banks  at  the  height  of  the  crisis  last  fall,  exceeded  the 
total  circulation  of  the  coimtry,  and  yet  the  circulating 
medium  is  ample  for  all  business  needs.  The  fault  of 
our  currency  system  is  that  there  is  no  simple,  expedi- 
tious method  whereby  banks  in  any  locality  where 
funds  are  being  withdrawn,  either  for  hoarding  or  com- 
mercial use,  can  expand  their  currency  in  order  to  meet 
such  demands,  —  no  flexibihty. 

Our  banks,  with  ample  capital,  with  good  manage- 
ment, rich,  strong,  replete  with  liquid  assets  repre- 
senting the  best  credit  of  the  country  —  and  that  means 
the  best  credit  of  the  world  —  could  obtain  no  cur- 
rency except  the  gold  they  bought  away  from  the 
banks  in  other  nations,  in  as  great  or  greater  stress  than 
themselves,  by  paying  a  very  high  premium  therefor. 
The  importation  of  gold  takes  time,  and  before  the  same 
could  be  procured  in  sufficient  volume,  a  panicky  feel- 
ing on  the  part  of  the  pubhc  was  fully  developed. 

The  crisis  last  fall  was  precipitated  by  the  failure  of  a 
stock-gambling  enterprise  of  people  who,  by  means  of 
inherited  or  adventitious  fortunes,  were  able  to  pur- 
chase the  control  of  several  banking  institutions.  The 
collapse  of  their  stock  speculation  brought  distrust 
upon  their  banks  and  the  "run"  precipitated  upon 
them  excited  a  degree  of  distrust  on  the  part  of  the 


CREDIT   AND   BANKING  97 

public,  which  resulted  in  the  withdrawal  of  money  for 
the  purpose  of  hoarding.  It  had  the  further  important 
effect  of  inducing  the  employees  of  the  various  mer- 
cantile and  manufacturing  concerns  and  other  patrons 
of  labor  to  withhold  the  money  received  from  the  pay- 
roll and  retam  the  same  in  their  possession,  instead  of 
as  usual  depositing  the  same  in  the  banks. 

The  shortage  of  mobile  capital,  evidenced  by  money 
stringency  during  the  fall  and  early  winter,  was  world- 
wide. The  growing  volume  of  business,  which  charac- 
terized the  whole  commercial  world  during  the  last  four 
or  five  years,  the  greatest  boom  period  the  world  has 
known,  culminated  when  it  reached  a  point  where 
over-taxed  capital  and  over-strained  credit  could  no 
longer  sustain  the  burden.  This  condition  being  world- 
wide, it  affords  an  excellent  opportmiity  to  compare 
the  commercial  and  currency  systems  of  the  different 
countries  under  the  trying  ordeal  of  crucial  experience. 
The  result  of  such  comparison  certainly  cannot  be 
flattering  to  the  United  States.  With  our  enormous 
annual  production  of  gold  and  silver,  with  our  enormous 
exportation  of  food  products  and  raw  materials,  an 
advantage  that  Europe  does  not  enjoy,  we  were  the  only 
coimtry  that  was  obliged  to  suspend  currency  pay- 
ments. 

Inadequate  Laws  Demoralize  Credit 

This  proves  conclusively  the  inferiority  of  our  cur- 
rency system.  It  is  characterized  by  European  finan- 
ciers   as   "barbarous,"    and   the    leading    bankers    of 


98  CREDIT  AND  BANKING 

Germany  tell  me  that  had  they  possessed  our  currency 
system  they  would  have  had  a  cataclysm  in  their  indus- 
trial and  financial  mstitutions.  In  Germany  any  bank 
with  good  three-name  commercial  paper  can  go  to  the 
Reichsbank,  discount  the  same  and  receive  the  pro- 
ceeds in  cm-rency.  The  Reichsbank,  or  Imperial  bank, 
is  authorized  to  issue  472,829,000  marks  in  currency 
without  tax;  they  may  issue  beyond  that  amount,  but 
are  required  to  pay  a  5-per  cent  tax  to  the  Imperial 
Treasury.  They  must  have  the  notes  so  issued  at  all 
times  covered  by  three-name  commercial  paper  in 
their  possession,  and  must  keep  a  metallic  reserve 
equal  to  33|  per  cent. 

In  the  United  States  there  is  no  bank-note  ch-culation, 
as  the  term  is  defined  by  economists  and  generally 
understood.  The  banks  may  buy  bonds,  deposit  them 
with  the  Government  and  the  Government  issues  to 
them  bank-notes,  which  the  Government  in  turn 
redeems.  That  is  to  say,  a  bank  may  pay  $105,000 
for  $100,000  bonds,  105  being  the  market  price,  against 
which  they  may  receive  currency  at  par.  That  is  to 
say,  they  are  required  to  pay  more  for  the  currency 
than  it  is  worth;  they  lock  up  the  premium,  and  every 
bank  that  takes  out  circulation  under  these  conditions 
weakens  itself  and  impairs  its  ability  to  meet  the 
demands  of  the  pubUc,  rather  than  increases  them. 
They  are  required  to  go  outside  of  their  legitimate 
business  and  buy  bonds  which  they  do  not  want, 
a  portion  of  the  cost  of  which  only  is  returned  to  them 
in  the  form  of  circulation. 


CREDIT  AND  BANKING  99 

The  responsibility  for  the  unfortunate,  humiliating 
and  most  expensive  experience  of  last  fall  rests  with 
the  people  who  make  our  laws.  Let  legislation  be  such 
that  a  bank  in  good  condition,  with  ample  assets  of  good 
character,  can  obtain  currency  to  meet  the  public 
demands,  and  then  if  any  institution  fails  in  meeting 
such  demands,  the  responsibihty  rests  upon  it  and  it 
should  be  disciplined  accordingly  —  placed  in  the  hands 
of  a  receiver  for  an  act  of  insolvency.  The  normal, 
natural  and  legitimate  assets  of  commercial  banks, 
assets  acquired  in  the  regular  course  of  serving  the 
commerce  and  trade  of  the  coimtry,  should  be  made  the 
basis  of  bank  circulation.  That  is  what  is  meant  by 
"asset  currency." 

I  do  not  purpose  the  discussion  of  our  currency  laws, 
but  what  I  have  said  seems  called  for  in  discussing  the 
ethical  side  of  banking. 

Varying  Types  of  Customers 

The  banking  standard  of  character,  with  reference 
to  making  loans  or  receiving  deposits,  contemplates  a 
man  whose  habits  and  principles  give  him  good  stand- 
ing in  his  community;  whose  convictions  and  idiosyn- 
crasies will  not  miUtate  against  his  success;  whose 
abihty  and  experience  justify  his  undertaking  the  busi- 
ness he  has  in  hand,  and  whose  capital,  supplemented 
by  what  the  bank  may  loan  him,  is  sufficient  for  his 
enterprise. 

We  do  business,  at  arm's  length,  with  all  sorts  of  men, 


100  CREDIT  AND   BANKING 

which  the  varied  and  kaleidoscopic  features  of  our  in- 
dustrial life  bring  into  the  maelstrom  of  business.  But 
our  associates,  measurably  of  our  own  selection,  should 
be  persons  of  character. 

The  most  tiresome  man  is  he  who,  with  time  on  his 
hands,  makes  a  modicum  of  business  savor  a  con- 
versation covering  the  whole  gamut  of  past,  current, 
and  prospective  conditions,  and  when  he  has  finished 
at  one  desk  calmly  awaits  his  turn  for  repetition  at 
another. 

The  most  sunshiny  is  he  who  exhales  cordiality,  and 
keeping  close  to  the  business  in  hand,  by  pungent  wit  or 
original  expression,  gives  ease  and  charm  to  an  otherwise 
prosaic  affair.  Our  Hves  generally  are  spent  in  business 
activities,  and  but  for  the  genial  smile,  the  jovial  word, 
the  feeling  of  affiliation  that  soften  the  asperity  and 
vivify  the  routine  of  labor,  our  lives  would  have  a  tread- 
mill character  indeed. 

The  most  disagreeable  is  the  sordid  man,  who  never 
misses  an  opportunity,  who  exacts  everytliing  and  gives 
nothing,  whose  thoughts  are  stamped  with  the  dollar 
mark  and  whose  virtues  are  dwarfed  and  obscured. 

The  most  dangerous  man  is  the  enthusiast,  honest  in 
his  motive,  confident  of  the  results,  who  m  his  fervor 
may  carry  conviction  and  obtain  credit,  only  to  end  in 
loss  and  disappointment. 

The  best  man  is  he  who,  by  hard  work  and  good  judg- 
ment, seeks  to  furnish  the  pubUc  something  which  it  is 
to  their  advantage  to  possess,  at  a  fair  price,  and  makes 
his  living  and  makes  his  fortime  by  giving  value  received. 


CREDIT  AND  BANKING  101 

In  this  age  of  commercialism,  sometimes  called  money- 
mad,  when  people  strive  to  accumulate  far  beyond  their 
needs,  and  as  a  rule,  seemingly,  with  no  settled  purpose 
of  devoting  their  wealth  to  any  public  purpose,  sacri- 
ficing ease,  pleasure,  culture,  all  with  its  concomitant 
extreme  of  growing  socialism,  with  wealth  and  its  posses- 
sors under  scathing  denimciation,  I  can  find  no  better 
sentiment  with  which  to  close  this  lecture  than  is  ex- 
pressed in  the  following  quotation  from  "Taylor's  Notes 
on  Life,"  written  more  than  two  generations  ago: 

"The  philosophy  that  affects  to  teach  us  contempt 
of  money  does  not  run  very  deep;  for,  indeed,  it  ought 
to  be  still  more  clear  to  the  philosopher  than  it  is  to  the 
ordinary  man,  that  there  are  few  things  in  the  world  of 
greater  importance.  And  so  manifold  are  the  bearings 
of  money  upon  the  hves  and  character  of  mankind,  that 
an  insight  which  should  search  out  the  Ufe  of  a  man  in 
his  pecuniary  relations  would  penetrate  into  almost 
every  cranny  of  his  nature.  He  who  knows,  like  St. 
Paul,  both  how  to  spare  and  how  to  abound,  has  a  great 
knowledge;  for  if  we  take  account  of  all  the  vhtues  with 
which  money  is  mixed  up  —  honesty,  justice,  generosity, 
chastity,  frugality,  forethought,  self-sacrifice  —  and 
their  correlative  vices,  it  is  a  knowledge  that  goes  near 
to  cover  the  length  and  breadth  of  humanity;  and  a  right 
measure  and  manner  in  getting,  saving,  spending,  giv- 
ing, taking,  lending,  borrowing,  and  bequeathing  would 
almost  argue  a  perfect  man." 


PUBLIC  SERVICE 

BY   EDWARD    W.    BEMIS 

The  term  public  service  may  mean  not  only  work 
for  the  public,  in  an  elective  or  appointive  office,  but 
also  work  in  a  private  capacity,  as  a  molder  of  public 
opinion.  The  morals  and  ethics  of  such  service  cover 
our  duties  growing  out  of  the  importance  of  public  work 
and  its  need  of  our  help.  Before  such  an  audience  as 
this,  nothing  surely  can  better  emphasize  the  subject 
than  to  show  how  much  we  are  coming  to  depend 
upon  public  work  and  how  much  improvement  we  can 
make  in  it.  The  graduates  of  such  an  institution  as 
this  have  moreover  a  direct  personal  interest  in  good 
government.  The  more  that  good  engineering  and 
executive  ability  are  appreciated,  the  more  will  a 
high  grade  of  professional  service  be  in  demand  and 
the  more  permanent  and  better  paid  will  be  the  work 
that  our  technological  graduates  will  be  called  on  to 
perform  for  their  city  and  state. 

In  the  year  1905  the  population  of  22,204,000,  esti- 
mated by  the  United  States  Department  of  the  Census 
as  living  in  our  one  hundred  and  fifty-four  largest  cities, 
were  contributing  to  city  government  alone,  for  its 
operation  and  maintenance,  $25.80  per  capita,  or  $129 
for  every  family  of  five.     This  was  aside  from  any  ex- 

102 


PUBLIC  SERVICE  103 

penditures  for  land,  buildings,  and  other  improvements 
out  of  bond  issues.  This  expenditure  has  been  rapidly- 
growing,  and  to-day  New  York  City  has  $160,000,000 
of  yearly  expenditures,  or  more  than  those  of  Lon- 
don, or  Norway,  Sweden,  and  Holland  combined,  and 
more,  too,  than  both  Belgium  and  Switzerland. 

Yet  it  is  not  the  cities  with  the  lowest  expenditures 
per  capita  that  are  the  best  governed  or  that  are 
doing  the  most  for  their  citizens.  In  the  sixteen  cities 
of  over  300,000  population,  contrast  the  reputation  for 
good  government  enjoyed  by  at  least  two  of  the  three 
having  the  highest  per  capita  expenses  (Boston,  $48.90, 
New  York,  $41.12,  and  Washington,  $38.77)  with  the 
three  cities  having  the  lowest  expenditures  per  capita 
(Milwaukee,  $17.36,  New  Orleans,  $19,  and  Cliicago, 
$20.95).  One  must  admit  that  it  is  often  the  case  that 
the  best  governed  city  is  not  that  which  spends  the 
least  money  per  capita.  Cleveland,  with  an  expendi- 
ture of  $25.72,  surely  has  a  better  city  government 
than  Philadelphia  with  $22.96  per  capita  expenditure. 

Not  only  in  the  city,  however,  but  in  the  state,  have 
we  come  to  recognize  the  fallacy  of  the  old  Jeffersonian 
doctrine  that  the  best  government  is  that  which  governs 
least,  and  the  best  tax  is  the  lowest.  Neither  is  there 
any  reason  to  be  alarmed  over  the  fact  that  the  indebted- 
ness of  all  our  cities  of  over  30,000  population,  after 
deducting  sinking  funds,  is  $58.48  per  capita;  for  these 
same  cities,  according  to  the  United  States  Census 
Bureau,  possess  $37.44  per  capita  of  productive  property, 
such  as  waterworks  and  lighting  plants,  and  $68.93  of 


104  PUBLIC  SERVICE 

unproductive  property  such  as  parks,  public  buildings, 
sewerage  systems,  paving,  etc.  In  other  words,  for 
every  dollar  of  debt  there  was,  in  1905,  $1.82  of  property. 
Moreover,  the  people  pay  as  much  to  the  street  railway 
and  lighting  companies  of  our  large  cities  as  they  do 
in  real  estate  and  personal  taxes. 

Nevertheless,  the  growth  of  pubHc  activities  has  been 
startling.  State  expenditures  have  increased  chiefly  in 
the  matter  of  public  highways,  education  and  the  care 
of  the  defective  and  criminal  classes.  But  in  cities 
the  increase  of  expenditures  for  our  fire  departments, 
schools,  streets,  health,  and  even  our  pleasures  through 
parks  and  playgrounds,  and  in  the  supervision  of  our 
tenement  buildings,  has  gone  forward  by  leaps  and 
bounds.  We  now  reaUze  that  in  many  cases  men  are 
not  the  best  judges  of  their  own  interests,  while  in 
other  cases  their  interests  are  not  identical  with  those 
of  the  community.  Only  through  society  in  its  organ- 
ized capacity  can  we  protect  our  forests  for  the  next 
generation  and  our  rivers  for  the  present,  or  prevent 
rebates  to  the  strong,  and  child  labor  among  the  weak. 
Only  through  government  can  we  abate  the  smoke 
nuisance,  force  the  abolition  of  gi-ade  crossings,  and 
protect  ourselves  from  smallpox,  tuberculosis,  and 
other  contagious  diseases. 

There  is  scarcely  a  function  of  government  to-day 
that  was  not  once  in  the  hands  of  private  enterprise  or 
of  the  church.  Our  police  and  fire  department,  our 
roads  and  our  schools,  were  left  to  the  profit-maker  or 
to  private  philanthropy,  while  provisions  for  sanitation. 


PUBLIC  SERVICE  105 

pure  water  and  sewage,  building  inspection,  and  control 
of  child  labor  were  left  to  the  head  of  each  family. 

In  the  light  of  the  increased  activities  of  State  and 
Local  authorities,  and  in  view  of  the  gi-owth  that  we  have 
seen  in  the  same  in  most  states,  during  even  the  last 
five  years,  who  can  say  when  and  where  the  movement 
will  stop,  or  who  can  even  be  confident  as  to  where, 
amid  our  rapidly  changing  conditions,  such  activities 
ought  to  stop?  Yet  m  saying  this,  I  do  not  speak  as  a 
socialist,  but  as  a  firm  behever  in  the  advantages  of  the 
competitive  system  wherever  it  does  not,  of  itself,  break 
down  from  natural  causes. 

The  growth  of  pubUc  service  is  not  due  to  increase  of 
crime,  but  to  the  growing  complexities  of  Ufe  and  of  the 
occasions  for  universal  cooperation. 

The  Ethical  Side  of  the  Problem 

Since  public  business  is  rapidly  assuming  such  large 
dimensions,  the  duty  imposed  upon  all  citizens,  and 
especially  upon  those  of  college  training,  is  clear.  What- 
ever our  views  as  to  the  enlargement  of  governmental 
functions,  we  must  recognize  our  duty  to  take  the  lead 
in  helping  the  government,  whether  state  or  local,  to 
perform  well  what  it  has  already  undertaken. 

Strange  as  it  may  at  first  sight  appear,  the  modern 
city  fulfils  many  functions  of  the  early  Christian  Chm-ch. 
It  preaches  the  gospel  of  cleanhness  and  health  in  the 
home  through  its  pro\asion  for  cheap  water,  proper 
housing,    inspection    of    food,   prevention    of    disease. 


106  PUBLIC  SERVICE 

removal  of  garbage  and  ashes,  etc.  It  has  assumed  the 
education  of  the  child,  and  even  of  the  adult  through 
public  Ubraries  and  school  lecture  courses  and  evening 
classes  —  an  education  formerly  provided  only  by  the 
Church.  The  child  enters  upon  its  ''teens"  and  goes  to 
work,  and  the  city  safeguards  the  conditions  of  its 
employment  as  rigorously  as  did  ever  the  Church  in  the 
Middle  Ages.  When  poverty  and  disease  overtake  it, 
the  city  instead  of  the  monastery  provides  hospitals  and 
other  forms  of  relief. 

The  unity  characteristic  of  the  early  Church  is  found 
to-day  only  in  the  modern  city,  where  there  are  scores 
and  hundreds  of  churches  but  only  one  government. 
The  sense  of  brotherhood  taught  by  the  early  Apostles 
is  now  best  seen  at  the  ballot  box  and  at  the  City  Hall, 
where  the  masses  feel  as  much  at  home  as  in  the  church. 

The  famous  London  editor,  Mr.  Stead,  who  has 
strikingly  called  attention  to  this  point,  speaks  of  how, 
in  case  of  a  fire,  all  the  resources  of  the  city  are 
concentrated  upon  the  point  of  danger.  He  says: 
"There  is  no  question  as  to  rich  and  poor,  no  discussing 
in  police  stations  or  at  the  fire  department  as  to  whether 
or  not  the  locahty  was  a  long  way  off  or  what  might  be 
its  ratable  value  or  anything  else.  There  is  fire,  and 
there  is  need,  and  that  is  enough.  The  whole  macliine, 
splendidly  equipped  in  perfect  discipHne,  acts  almost 
automatically  on  any  appeal  from  any  section  of  the 
community : 

"Contrast  this,  where  we  have  the  social  organism 
functioning  at  its  best  under  municipal  guidance  and 


PUBLIC  SERVICE  107 

direction,  with  the  way  in  which  the  ecclesiastical 
churches  act  when  some  moral  pestilence,  which  it  is  no 
exaggeration  to  compare  to  an  outbreak  of  hell-fire, 
takes  place  in  any  quarter  of  the  town.  To  begin  with 
there  is  no  special  patrolman  to  give  the  alarm,  and  if 
there  were,  there  is  no  arrangement  by  which  the  cry 
could  be  heard,  let  alone  be  heard  instantaneously 
throughout  the  churches  of  the  city.  But  supposing 
that  by  some  telepathic  miracle,  the  spiritual  watchman 
could  sound  his  warning  note  in  the  ears  of  all  the 
churches,  how  many  of  them  would  respond?  Some 
would  shrug  their  shoulders  and  say  it  was  outside  their 
parish,  others  would  remark  that  it  was  among  the 
Catholics  and  not  for  their  people,  others  again  that  there 
were  no  CathoUcs  in  the  region,  but  they  were  all  Jews, 
and  that  they  ought  to  look  after  themselves.  This 
refusal  is  born  not  of  selfishness  or  of  cruelty,  but  is  due 
simply  to  the  fact  that  the  evolution  of  the  Christian 
ideal  of  the  unity  of  the  social  organism  has  not  yet 
attained  so  high  a  point  in  the  churches  as  it  has  done 
in  the  municipality." 

Some  of  the  greatest  evils  in  our  society  to-day  are 
those  which  only  a  government  supported  by  a  proper 
public  opinion  can  remove.  Such  are  the  evils  of 
unequal  taxation,  the  undue  absorption  by  a  few  of  the 
profits  of  special  privileges,  the  lack  of  a  square  deal  in 
matters  controllable  by  the  legislature  or  the  com-ts, 
corruption  at  the  primary  and  the  ballot  box  and  in  the 
conduct  of  government,  the  unsanitary  condition  and 
lack  of  protection  for  the  weak  in  their  conflict  with  the 


108  PUBLIC  SERVICE 

predatory  instincts  of  the  powerful.  If  Jesus  were  to 
appear  to-day  He  would  be  quite  as  likely  to  find  His 
greatest  field  of  usefulness  in  the  City  Hall  or  the  State 
Capitol  as  in  the  temples  consecrated  to  divine  worship, 
great  as  is  the  value  of  the  latter. 

We  are  taking  and  are  obliged  to  take  an  increasing 
interest  in  the  new  problems  that  are  arising  with  dense 
population  and  the  growth  of  large  corporations  and 
monopolies.  We  are  learning  that  men  are  not  born 
so  much  with  inaUenable  rights  as  with  imperative 
duties. 

Although  the  legislative  agents  of  government, 
through  so-called  ''strikes,"  sometimes  attempt  to  force 
corrupt  payments  from  privately  owned  monopolies, 
yet  whenever  communities  have  been  able  in  any  direct 
way  to  express  themselves,  they  have  sought  justice 
and  have  been  even  generous.  Individuals  in  society, 
however,  often  inflict  great  injustice  upon  government 
in  demanding  exorbitant  prices  for  land  and  supplies 
sold  to  public  authorities  and  in  carrying  trade  union 
ethics  of  private  warfare  into  dealings  with  the  public. 
This  important  phase  of  our  subject  must  be  passed 
over  with  this  mere  reference.  Attention  is  next  called 
to  those  people  avowedly  engaged  in  public  service. 

Administration  —  Its  Growing  Importance  and  Present 
Weakness 

With  the  growing  activities  of  the  city  and  state  there 
is  a  corresponding  growth  in  the  number  and  character 


PUBLIC  SERVICE  109 

of  those  who  carry  out  these  various  activities.  Mr. 
Sidney  Webb,  the  leading  English  authority  of  to-day 
on  local  government,  informs  the  speaker  that  the 
greatest  progress  in  England  during  the  last  seventy- 
five  years  has  been  in  the  development  of  expert  ser- 
vices in  administration. 

Contrast  that  with  our  own  weakness  in  this  respect. 
The  spoils  system  at  once  occurs  to  us.  That  this  sys- 
tem promotes  inefficiency  and  increases  the  cost  of  work 
is  admitted  by  all.  Wliere  employees  get  their  positions 
through  the  favor  of  a  poUtician  I  have  found  them 
inclined  to  rely  on  the  continuance  of  such  support  as 
more  important  than  a  strict  adherence  to  and  zealous 
performance  of  their  duties.  Carelessness,  laziness,  poor 
work,  and  insubordination  naturally  follow:  men  come 
late  to  their  work  and  are  not  conscientious  in  its  per- 
formance. The  uncertainty  of  tenure  and  the  contri- 
butions expected  duiing  campaigns  deter  as  good  a 
class  of  men  from  taking  work  under  the  spoils  system 
as  in  private  business.  Political  issues  are  clouded. 
Men  take  an  interest  in  campaigns  to  perpetuate  or  to 
secure  jobs  for  themselves  or  their  friends.  Issues  can- 
not be  clearly  seen  by  the  people  because  of  the  dust 
that  is  raised  by  the  spoilsmen. 

These  conditions  discourage  the  general  public  from 
favoring  a  more  rapid  assumption  of  public  work. 
AVhy,  then,  it  is  asked,  has  not  the  spoils  system  been 
long  ago  discarded?  It  is  certainly  not  because  of  the 
social  prestige  of  its  friends.  Few  men  of  influence  in 
business  or  professional  life  have  a  good  word  to  say  for 


110  PUBLIC  SERVICE 

the  spoils  system,  yet  it  still  does  survive  in  nearly  all 
of  our  cities  and  states. 

It  is  well  known  that  the  majority  of  postmasters  as 
well  as  the  employees  of  most  cities  and  states  are 
appointed  because  of  their  political  activities  or  affilia- 
tions. The  reasons  are  not  far  to  seek.  The  spoilsman 
is  of  vast  aid  in 'the  primaries  and  nominating  conven- 
tions. Success  there  is  vital  to  the  party  leader.  On 
the  other  hand,  the  pubUc  is  not  aroused.  The  leaders 
of  civil  service  reform  are  often  aristocratic  in  the  worst 
sense  of  the  term,  and  therefore  without  proper  follow- 
ing. Most  reformers  in  this  country  urge  a  civil  service 
law  putting  the  selection  of  two  or  three  from  whom  the 
appointment  must  be  made,  and  also  the  control  of  dis- 
missals, into  the  hands  of  a  commission.  This  is  far 
from  satisfactory.  It  may,  and  if  honestly  administered 
will,  greatly  lessen  control  by  poUticians.  It  does  not, 
however,  give  the  efficiency  or  power  of  initiative  in 
government,  whose  importance  in  public  work  will  be 
more  recognized  when  more  undertakings  of  a  business 
character,  like  the  supply  of  water,  gas,  electric  light, 
street  railways,  and  the  disposal  of  garbage,  are  assumed 
by  the  municipahty.  In  England  reliance  is  placed  on 
the  man,  as  it  should  be,  rather  than  on  civil  service 
laws.  Superintendents  are  selected  who  are  capable 
of  entire  management  of  the  plant,  and  they  are  allowed 
freedom  in  the  choice  and  discipline  of  their  employees 
and  are  held  responsible  for  results. 

You,  as  engineers,  will  find  it  important  to  guide 
cities  in  the  drawing  of  specifications  and  the  inspection 


PUBLIC  SERVICE  111 

of  contracts  let  thereunder.  Too  little  intelligence  and 
civic  spirit  are  now  bestowed  upon  these  important 
matters.  The  inspection  of  contract  work  in  paving 
and  building,  and  in  the  furnishing  of  supplies  and 
machinery,  for  the  public  is  becoming  of  increasing 
importance.  We  have  devoted  considerable  attention 
in  some  states  to  securing  proper  inspectors  of  child 
labor,  sanitation  and  building,  but  have  not  placed 
sufficient  importance  upon  the  other  lines  of  business 
just  mentioned. 

The  American  people  are  still  ignorant  of  the  im- 
portance of  a  high  grade  of  engineers  as  well  as  of 
executive  talent  in  public  administration.  The  com- 
monly accepted  theory  among  the  masses  that  one  man 
is  about  as  good  as  another,  and  that  anybody's  place 
in  public  work  can  be  easily  filled,  is  altogether  false. 
Even  if  many  subordinate  positions  can  in  time  be  filled 
as  well  by  new  men  as  by  those  now  in  office,  yet  it  takes 
a  long  time,  and  many  errors,  to  train  a  man  in  a  munic- 
ipal water  and  electric  fight  plant  to  do  as  good  work 
as  is  now  done  by  the  better  half  of  the  old  employees, 
—  while  in  the  higher  fines  of  engineering  and  executive 
work  the  difference  between  mediocre  abifity  and  a  liigh- 
grade  man  will  often  mean  hundreds  of  thousands  of 
dollars  to  a  community.  Fortunately  our  pubfic  bodies 
are  learning  wisdom  in  this  matter. 

In  the  management  of  a  revenue-producing  under- 
taking grave  weaknesses  often  appear  through  failure 
to  provide  a  proper  system  of  charges  and  sufficient 
investment  in  the  plant.     Unless  every  department  pays 


112  PUBLIC  SERVICE 

for  the  water  and  light  used  and  in  turn  is  paid  for  the 
services  it  renders,  and  unless  the  earnings  of  the  depart- 
ment are  retained  for  improvements  in  the  service  and 
plant  and  reduction  in  the  debts  and  rates  of  charge, 
the  best  results  of  mimicipal  business  and  the  highest 
benefits  to  the  community  cannot  be  secured. 

Operating  costs'  must  be  rigidly  separated  from  con- 
struction costs,  and  adequate  and  scientific  allowance 
must  be  made  for  depreciation.  Where  the  revenues 
of  the  plant  are  adequate  for  all  operating  and  depre- 
ciation charges  and  interest,  the  debt  hmit  should  not 
be  applied  to  revenue-producing  undertakings. 

Remedies  [or  Administrative  Defects 

Remedies  for  the  defects  in  administration  mentioned 
above  have  already  been  considered.  Emphasis  may 
well  be  placed  upon  three  prime  requisites  of  large 
improvement,  viz.:  public  opinion,  publicity  and  audit, 
and  the  federal  plan  of  concentrated  responsibility. 

In  all  these  it  is  for  you  who  are  out  of  office  to  help 
those  who  are  in  office. 

"  Why  don't  they  keep  the  streets  a  httle  cleaner?  " 

You  ask  with  keen  annoyance,  not  undue. 
"  Why  don't  they  keep  the  parks  a  little  greener?  " 

(Did  you  ever  stop  to  think  that  "  they  "  means  you?) 

"  How  long  will  they  permit  the  graft  and  stealing? 

Why  don't  they  see  that  courts  are  clean  and  true? 
Why  will  they  wink  at  crooked  public  dealing?  " 

(Did  you  ever  stop  to  think  that  "  they  "  means  you?) 


PUBLIC  SERVICE  113 

In  every  community  an  organization  should  be 
formed,  one  of  whose  objects  should  be  to  get  thoroughly 
acquainted  with  all  the  pubUc  business  of  the  place, 
and  through  a  thoroughly  trained  firm  of  accountants 
secure  a  proper  audit  of  pubUc  receipts  and  expendi- 
tures. Tlie  result  of  this  would  be  to  assist  good  govern- 
ments to  become  still  better,  and  to  take  away  some 
of  the  present  deplorable  opposition  to  any  increase  of 
taxation  Jest  the  money  be  wasted.  Such  publicity 
and  audit  will  discover  and  prevent  such  waste,  but  it 
will  also  show  the  need  of  more  expenditures  in  many 
directions. 

Through  the  federal  plan  or  in  some  other  way,  the 
people  must  be  able  to  look  to  one  man  as  responsible 
for  good  or  bad  management  of  each  department  of 
public  work.  It  is  all  very  well  to  have  a  board  or  small 
council  to  decide  questions  of  appropriations,  but  for 
questions  of  administration,  power  must  be  concen- 
trated in  the  hands  of  one  man  as  in  all  our  large,  private 
undertakings.  Only  in  this  way  can  the  government 
render  to  the  commmiity  the  best  service  of  which  it 
is  capable.  When  a  small  board  is  elected,  as  at  Gal- 
veston and  Des  Moines,  and  a  few  other  places,  of  late, 
care  must  be  taken  that  the  essential  feature  of  the 
Federal  Plan  is  preserved,  namely,  that  responsibihty 
and  authority  over  every  particular  piece  of  work  should 
be  lodged  in  some  one  man. 

Public  Service  in  Council  and  Legislature 
The  defects  of  our  legislative  bodies  are  as  conspicu- 


114  PUBLIC  SERVICE 

ous  as  those  of  our  administrative  departments.  The 
American  city  has  been  defined  by  Frederick  C.  Howe 
as  an  "economic  happening"  —  an  "urban  aggregation." 
Even  many  of  our  states,  especially  in  the  West,  are 
nothing  but  geographical  accidents.  There  has  been 
too  little  civic  pride  stimulating  to  service,  in  either 
state  legislature,  'county  board,  or  city  council.  For 
this  and  other  reasons  our  legislative  bodies,  whether 
at  Beacon  Hill  or  at  the  grave  of  Lincoln,  and  whether 
in  Quaker  Philadelphia,  with  its  native  American  stock, 
or  in  San  Francisco,  where  the  Orient  and  the  Occident 
meet,  have  been  considered  conspicuous  failures.  Even 
worse  are  some  of  our  county  boards,  although  thus  far 
httle  attention  has  been  devoted  to  them.  Public  busi- 
ness evidently  cannot  be  put  on  a  proper  foundation 
until  the  weakness  at  this  point  as  well  as  in  adminis- 
tration has  been  corrected. 

We  especially  need  two  qualities  which  are  pre-emi- 
nently lacking  in  the  American  people,  —  civic  patriot- 
ism as  distinct  from  readiness  to  die  in  battle,  and  moral 
courage.  In  other  words,  men  of  high  ideals  must  be 
ready  to  serve  the  city  and  the  state  no  matter  how 
unpopular  it  may  be  to  run  for  the  city  council  or  to 
stand  up  in  the  legislature  or  the  chamber  of  commerce 
and  board  of  trade  and  strike  out  manfully  for  the 
good  of  the  community  against  selfish  interests. 

Home  Rule,  such  as  California  has  most  conspicuously 
presented  to  us,  is  important.  On  the  Pacific  coast  every 
city  can  hold  its  own  constitutional  convention,  draft 
its  own  charter,  and  after  it  has  been  ratified  by  the 


PUBLIC  SERVICE  115 

voters  can  put  it  into  operation  unless  it  violates  funda- 
mental principles  of  the  state  constitution.  Nearly 
every  city  there  has  done  this. 

Had  our  cities  existed  in  1787,  the  makers  of  our 
National  institutions  would  have  reserved  rights  to  the 
cities  as  well  as  to  the  states.  It  is  for  us  to  undertake 
this  task.  Only  in  tliis  way  can  patriotism  be  fully 
developed  and  each  city  be  allowed  to  grow  according 
to  its  local  needs.  Until  a  state  is  ready  for  tliis,  state 
legislation  should  be  of  a  general  character,  such  as  the 
constitution  of  Ohio  requires.  The  demoraUzing  effect  of 
the  situation  in  most  states  was  well  brought  out  by  an 
eminent  Chicago  lawyer,  Edwm  Burritt  Smith,  in  the 
March,  1902,  Atlantic  Monthly  as  follows: 

"Charged  as  it  (the  state  legislature)  is  with  the 
power,  even  duty,  constantly  to  intermeddle  in  the 
affairs  of  every  municipahty  in  matters  purely  local, 
its  sessions  have  become  log-rolling  bees.  Local  meas- 
ures clog  its  calendar.  Each  member  seeks  to  press 
such  of  these  as  affect  his  locahty.  A  gang  of  members 
from  a  single  city,  acting  as  the  chattels  of  public  ser- 
vice corporations,  often  coerce  their  fellows  into  action 
prejudicial  to  the  public  welfare.  A  measure  which 
sacrifices  the  rights  of  the  people  of  but  a  single  com- 
munity can  rarely  be  expected  to  arouse  to  effective 
opposition  the  people  of  a  gi-eat  state.  The  good  of  a 
locahty,  often  of  many  locaUties,  is  sacrified  that  the 
public  business  itself  may  proceed.  Thus,  the  undemo- 
cratic attempt  of  the  people  of  the  state  arbitrarily 
to  govern  the  city  results  in  making  the  government 


116  PUBLIC  SERVICE 

of  both  city  and  state  irresponsible,  inefficient,  cor- 
rupt." 

The  state  should  only  deal  with  matters  of  state  such 
as  the  most  serious  crimes,  care  of  the  insane,  state 
highways,  marriage  and  divorce,  supervision  of  cor- 
porations created  by  the  state,  higher  education,  pri- 
maries and  elections,  and  the  raising  of  revenue  for  state 
purposes.  The  coimty  and  city  and  other  local  units 
should  be  allowed  to  determine  the  genera!  framework 
of  their  local  government,  whether  two  chambers  or 
one,  whether  the  commission  plan  with  government  by 
boards  or  otherwise,  and  what  shall  be  the  local  pohcies 
in  the  matter  of  ownersliip  and  operation  of  public 
utihties,  local  improvements,  exemption  of  any  class  of 
property  from  taxes,  sumptuary  legislation,  etc. 

Direct  primaries,  that  is,  direct  nomination  by  the 
people  without  the  intervention  of  caucus  and  con- 
vention, joined  to  its  necessary  corollary  of  a  shorter 
ballot  must  be  secured.  It  is  ridiculous  to  elect 
subordinate  administrative  officers,  such  as  coroners, 
clerks,  assessors,  secretaries  of  state,  sheriffs,  etc.  The 
people  can  never  secure  true  democracy  until  an  elector 
has  before  him  at  any  one  election  the  filling  of  only 
two  or  three  offices.  Few,  even  of  college  or  business 
training,  can  learn  who  are  the  best  candidates  for 
more  than  that  number  of  offices  at  any  one  time,  yet 
we  often  have  to  fill  twenty  offices  at  a  single  ballot. 
The  appointment  of  these  should  be  left  to  the  governor 
or  president  of  the  county  board  and  the  mayor. 

The  Recall,  so  successful  in  Los  Angeles,  is  attracting 


PUBLIC  SERVICE  117 

increasing  attention  as  a  means  of  securing  tlie  removal 
during  the  term  of  office  of  whoever  does  not  voice  the 
wishes  of  his  constituents. 

Direct  legislation,  or  the  right  of  veto  by  the  people, 
is  going  to  take  the  place  of  veto  by  our  courts,  mayors, 
and  governors,  while  the  people  will  also  more  and 
more  reassert  their  right  to  initiate  legislation  in  the 
city  and  state,  as  they  still  have  it  in  the  New  Eiigland 
town  meeting,  and  recently  in  some  Western  states. 

The  questioning  of  candidates  during  a  campaign  is 
also  rapidly  coming  into  favor  as  a  further  means  of 
educating  the  voter  as  to  the  merits  of  candidates  and 
issues.  The  various  suggestions  just  made  will  help  in 
securing  better  legislation  and  better  oversight  of  pub- 
lic business,  and  whatever  tends  to  that  end  it  is  our 
duty  to  advance. 

"Big  Interests"  or  "The  System" 

Not  only  Lawson  and  Steffens,  but  President  Roosevelt 
and  others,  have  introduced  into  current  discussion  the 
above  terms  whose  significance  is  now  understood  by 
all.  The  largest  profit  comes  from  the  cornering  of 
some  special  pri\dlege,  such  as  by  the  United  States  Steel 
Corporation  in  the  case  of  the  iron  ore  of  Lake  Superior 
and  of  the  coke-producing  fields  of  Pennsylvania,  and 
by  the  syndicates  owning  our  copper  mines  or  the  an- 
thracite coal  fields  and  pipe  lines.  Railroads  may  not 
only  give  special  rates  to  favored  shippers,  but  in  com- 
petition with  affiliated  steamship  lines  may  control  all 


118  PUBLIC  SERVICE 

the  docks  as  at  most  of  our  lake  ports.  We  are  con- 
cerned, however,  in  this  present  discussion,  with  those 
special  privileges  secured  from  the  state  and  city  in  the 
form  of  franchises,  which  are  characterized  by  monopo- 
listic features  and  large  profit,  and  by  dependence  upon 
public  grants.  These  public  service  corporations  natu- 
rally fall  into  the  hands  of  our  more  far-sighted  and 
wealthy  business  men.  This  condition  brings  with  it 
an  almost  irresistible  temptation  to  secure  weak  if  not 
corrupt  government.  The  pocket  nerve  is  enlisted  in 
securing  as  weak  regulation  and  as  liberal  grants  as 
possible.  It  is  very  hard,  in  these  circumstances,  for 
our  powerful  citizens  to  become  disinterested  champions 
of  strong  and  good  government.  One  is  forcibly  re- 
minded of  Lincoln's  story  of  the  southern  slave  owner 
sitting  in  the  shade  of  his  favorite  tree,  pondering  upon 
the  weaknesses  of  slavery  as  he  watches  one  of  the 
slaves  working  in  the  heat  of  the  sun.  The  master 
remarks  to  himself  that  it  is  very  hard  for  him  to  admit 
that  slavery  is  wrong  when,  in  that  case,  he  would  have 
to  go  out  in  the  sun  and  handle  the  hoe  himself. 

One  of  the  leading  lawyers  of  the  United  States  once 
told  the  writer,  "I  would  enjoy  nothing  better  than  lead- 
ing a  Reform  movement  in  my  city,  but  no  man  can 
afford  to  do  it  as  it  ought  to  be  done  in  any  city  unless 
he  is  worth  a  half  milHon  dollars.  For  example:  I  am 
forced  to  seek  accommodations  at  the  banks,  but  they 
handle  the  stocks  and  bonds  of  the  powerful  companies 
holding  franchises  or  controlling  assessors  and  other 
city  departments  to  such  a  degree  that  if  I  began  a 


PUBLIC  SERVICE  119 

really  vigorous  contest  for  the  people's  right,  I  probably 
could  not  secure  banking  favors  at  a  single  bank.  With 
an  expensive  family  and  the  fact  staring  me  in  the  face 
that  it  is  to  these  powerful  and  corrupting  corporations 
that  lawyers  must  resort  for  large  fees,  I  confess  that  I 
am  not  heroic  enough  to  take  up  the  cudgels  for  reform." 

Attacks  on   Special   Privilege  through   Public  Opinion, 
Taxation,  Regulation,  and  Ownership 

The  two  most  popular  suggestions  for  meeting  this 
problem  of  local  monopoly,  viz.:  by  taxation  and  by 
regulation,  do  not  go  to  the  core  of  the  matter,  but  rather 
increase  the  temptation  of  those  that  are  regulated  or 
taxed  to  control  their  regulators  and  taxing  authorities. 
Of  course,  unregulated  and  untaxed  monopoly  is  out 
of  the  question,  and  the  people  of  most  places  are  not 
yet  ready  for  anything  more  drastic.  But  the  time  is 
surely  coming  when  further  steps  will  be  taken.  Some 
think  it  will  be  in  the  line  of  municipal  ownership,  with- 
out operation,  of  road  bed,  mains,  conduits  and  wires  in 
the  streets.  The  objections  to  this  are,  the  difficulties 
of  reconciling  ownership  in  the  hands  of  one  party  with 
operation  in  the  hands  of  another,  and  the  fact  that 
monopoly  profits  have  come  less  frequently  from  the 
construction  than  from  the  operation  of  such  properties. 
By  this  I  mean  that  it  is  much  easier  for  a  conrmmnity 
to  let  the  contract  for  the  construction  of  mains  or  wires 
or  street  railway  tracks  at  a  reasonable  profit  to  the 
contractor  than  it  is  to  secure  afterward  from  the  would- 


120  PUBLIC  SERVICE 

be  operating  companies  reasonable  bids  for  service. 
The  English  have  tried  this  method  of  separation  of 
ownership  from  operation,  and  have  discarded  it. 

Others  look  with  more  hope  toward  management  by  a 
holding  company  in  the  interests  of  the  public.  Tliis  is 
the  experiment  entered  upon  in  April,  1908,  with 
the  two  hundred  and  fifty  miles  of  street  railways  in 
Cleveland.  If  successful  there,  it  is  sure  to  spread  to 
other  cities.^ 

Some  also  believe  that  although  the  holding  company 
may  be  the  best  intermediate  stage  for  street  railways, 
yet,  at  least  in  the  case  of  water  and  lighting,  many  cities 
are  ready  for  direct  mimicipal  operation.  All  but  one 
of  the  twenty-one  members  of  the  National  Ci\dc  Federa- 
tion Commission  appointed  to  investigate  municipal 
ownership  reported  as  a  result  of  their  extensive  mves- 
tigation  in  this  country  and  Great  Britam  that  every 
city  should  have  the  right  to  own  and  operate  any  pub- 
lic utilities.  In  this  way  only  are  private  companies 
likely  to  take  away  in  many  places  the  temptation  to 
the  community  to  exercise  this  light  to  public  operation. 

Time  does  not  permit  the  discussion  of  mimicipal 
operation  of  public  utilities  like  street  railways  and 
hghting  plants,  but  one  cannot  omit  remarking  that  in 
two  directions  our  so-called  public  utilities  are  proving 
a  menace  to  proper  pubhc  service,  viz. :  (1)  As  already 
indicated,  the  rich  and  powerful  become  interested  in 
weak  if  not  positively  corrupt  government  at  a  time 

*  Various  conditions  prevented  a  fair  trial  of  this  plan,  which 
was  abandoned  in  Cleveland  in  October. 


PUBLIC  SERVICE  121 

when,  as  never  before,  we  need  an  efficient  government 
in  the  line  of  sanitation,  education,  management  of 
streets,  parks,  and  public  works,  and  in  every  direction 
of  public  activity.  (2)  Our  public  utilities  so  offend 
the  public  by  large  monopoly  profits,  without  any  ade- 
quate return  from  the  franchises  enjoyed,  that  both  the 
employees  and  the  public,  especially  in  the  case  of  street 
railways,  are  forming  a  habit  of  defrauding  the  company 
to  an  extent  that  would  hardly  be  tolerated  under  pub- 
lic management. 

With  respect  to  functions  already  performed  by  the 
public  it  is  interesting  to  note  that  the  revenue-pro- 
ducing enterprises  of  a  city  are  usually  freer  from 
politics  and  their  managers  have  longer  tenure  of  office 
than  in  the  case  of  the  non-revenue-producing  enter- 
prises such  as  the  park,  street,  and  charity  departments. 
In  almost  any  city  the  schools  and  fire  and  poUce  depart- 
ments are  the  best  administered;  then  come  the  water 
and  lighting  departments,  and  at  the  bottom  of  the  list 
come  those  with  respect  to  which  comparison  with  other 
cities  are  not  easily  made,  and  where  there  are  no 
wealthy  interests  concerned  to  expose  weakness  and 
failure.  Since  there  is  no  private  capital  invested  in 
sewerage  or  street  paving,  bad  management  of  those 
departments  is  not  carefully  watched  by  competing 
private  ownership  as  in  the  case  of  hghting  and  street 
railways.  Comparisons  of  unit  costs  are  also  more  dif- 
ficult in  the  former  than  m  the  latter  class  of  work. 

Those  who  are  desirous  of  studying  the  conditions 
under  which  municipal  ownership  and  operation  can  be 


122  PUBLIC  SERVICE 

made  highly  successful  should  study  the  methods  pur- 
sued in  the  municipal  electric  Ughting  plant  of  South 
Norwalk,  Conn.  Space  forbids  more  than  the  passing 
references  already  made  to  four  conditions  of  highly 
successful  municipal  operation  of  public  utihties: 

(a)  A  well-paid  manager  with  full  responsibility  and 
holding  his  office 'during  good  behavior. 

(6)  Exclusion  of  political  influence  and  personal 
favoritism, 

(c)  Separation  of  the  finances  of  the  undertaking 
from  those  of  the  rest  of  the  city. 

(d)  Exemption  from  the  debt  limit  of  the  necessary 
bond  issues  for  revenue-producing  utilities.  Said 
bonds  and  interest  thereon  to  be  a  charge  upon  the 
revenues  of  such  undertakings. 

The  New  Ethics  of  Social  Service 

It  is  the  part  of  a  patriot,  and  of  a  Christian,  to  have 
all  the  share  possible  in  the  nomination  and  election  of 
proper  candidates,  and  m  the  support  of  those  in  office 
who  are  worthy  of  that  support.  The  Puritan  preachers 
were  wont  to  tell  their  people  to  "practise  dying." 
*'Yes,  but  what  is  dying?"  writes  Professor  Drummond. 
"It  is  going  to  a  city."  "And  what  is  required  of  those 
who  would  go  to  a  city?"  "The  practice  of  citizen- 
ship,"—  he  repHed,  "the  due  employment  of  the 
imselfish  talents,  the  development  of  pubUc  spirit,  the 
payment  of  the  full  tax  to  the  great  brotherhood, 
the   subordination   of   personal   aims    to   the   common 


PUBLIC  SERVICE  123 

good,"  "  And  where  are  these  to  be  learned?  "  " Here," 
he  says,  "in  cities,  here;  there  is  no  other  way  to  learn 
them.  There  is  no  Heaven  to  those  who  have  not 
learned  them," 

I  might  also  quote  the  words  of  one  who  has  thought 
and  written  much  of  value  on  this  subject,  Rev.  Wash- 
ington Gladden,  of  Columbus:  "It  is  because  you  and 
I  have  been  so  busy  with  our  mills  and  our  mines  and 
our  merchandise,  with  our  selfish  schemes  and  our 
trivial  enjoyments  and  our  narrow  professionalisms, 
with  wTiting  briefs  and  mixing  pills,  and  expounding 
creeds  and  cramming  paradigms,  and  have  left  our  one 
main  business  of  ruling  the  city  in  the  fear  of  God  to 
those  who  feared  not  God  nor  regarded  man,  that  such 
a  horror  of  great  darkness  rests  now  upon  our  cities," 

Men  who  have  powers  of  leadership  are  coming  to 
this  view.  At  the  close  of  April,  a  ten-year  contest 
between  the  city  and  the  Cleveland  Electric  Railway 
Company,  with  regard  to  its  franchises,  came  to  an  end 
and  the  property  of  the  company  was  handed  over  by 
its  president  to  a  holding  company,  to  be  run  almost  in 
the  same  way  as  if  directly  owned  by  the  city.  To  a 
large  assemblage  of  citizens,  when  this  transfer  took 
place,  Mayor  Johnson,  who  had  led  the  fight  for  the 
city  during  the  last  seven  years,  voiced  the  following 
sentiments,  which  many  a  citizen  is  beginning  to  feel; 
he  said: 

"We  have  been  engaged  in  a  work  that  was  not  really 
a  contest  between  men.  We  were  fighting  for  some- 
thing —  at  least  we  felt  we  were  —  bigger  than  any 


124  PUBLIC  SERVICE 

mere  opinion  or  act  of  any  indi\ddual.  We  have  been 
struggling  for  something  even  beyond  the  accomplish- 
ment of  three-cent  fare,  or  municipal  ownership,  or  the 
city's  ownership  of  the  streets,  or  any  of  those  questions. 
We  are  trying,  this  people  is  trying,  to  set  an  example 
that  others  may  follow,  in  self-government,  in  some 
plan  by  which  the  people  Uving  in  great  congested 
centers  can  govern  themselves  in  a  way  that  the  greatest 
happiness  will  come  to  them.  That  is  our  big  object. 
Some  of  us  to-night  think  of  this  meeting  as  the  end  of 
a  struggle;  but,  my  friends,  it  is  only  a  feeble  beginning 
of  other  things  that  are  yet  to  come,  I  don't  regard  it 
as  an  end,  for  the  pathway  to  better  things  will  be 
strewn  by  many  battles  and  many  struggles,  but  the 
truth  will  prevail  in  the  end;  and  I  am  more  confident 
now  than  ever  in  my  life  that  the  failure  of  democracy 
that  is  so  often  pointed  out  in  our  cities  will  be  a  thing 
that  the  next  generation  will  point  to  as  the  success  of 
democracy,  for  the  hope  of  democracy  at  last  is  in  our 
cities. 

"It  is  under  conditions  that  we  find  people  gathered 
here,  that  the  civ'ihzation  of  the  future  is  going  to  be 
worked  out;  and  for  the  httle  part  that  I  have  played, 
or  the  part  of  our  immediate  friends,  I  want  to  say  that 
we  are  grateful  to  be  a  part  of  it.  To  the  great  public 
and  this  council,  who  have  helped  in  this  work,  on  be- 
half of  the  council,  I  say  to  the  public  that  we  are  proud 
of  being  a  part  of  it.  But  the  real  credit  is  neither  due 
to  the  administration  nor  to  the  council ;  it  is  due  to  the 
right-minded  people  of  this  community,  and  that  at  last 


PUBLIC  SERVICE  125 

is  the  measure  of  all  the  good  that  can  come  to  any 
community. 

"  I  am  glad  to  take  a  humble  part  in  it,  and  I  would 
rather,  my  friends,  leave  to  those  little  grandchildren 
of  mine  the  feeling  that  this  community,  which  has 
trusted  me,  will  never  have  occasion  to  regret  it,  than 
to  leave  to  them  any  other  heritage  on  this  earth." 

The  graduate  of  college  or  professional  school,  look- 
ing forward  to  a  career,  has  hitherto  hesitated  about 
entering  pubUc  service  because  of  the  uncertainty  of 
tenm-e  and  lack  of  prizes  in  the  form  of  salary,  public 
reputation,  and  a  sense  of  power  over  men  and  things. 
Conditions  in  this  respect,  are  greatly  improving; 
everywhere  the  public  is  beginning  to  appreciate  the 
importance  of  the  highest  grade  of  professional  abiUty 
and  the  necessity  of  paying  well  for  it.  Especially  promis- 
ing fields  of  pubUc  service  lie  in  the  way  of  expert  work 
by  engineers  who,  retaining  their  personal  independence, 
help  the  city  or  company  as  their  services  are  required. 
Following  professional  training,  splendid  preparation 
for  such  work  is  in  the  office  and  drafting  rooms  of 
the  engineering  departments  of  our  large  cities.  There 
are  cities  to-day  of  this  country  that  give  their  engineers 
and  heads  of  departments  as  great  independence  of 
politics  and  discretion  m  the  management  of  business 
as  do  private  companies.  The  speaker  can  testify  to 
this  from  personal  knowledge.  From  a  somewhat 
extensive  experience,  also  with  expert  work  in  temporary 
engagements  in  many  of  our  largest  cities,  during  the 
last  ten  years,  I  am  positive  that  pubUc  business  will 


126  PUBLIC  SERVICE 

prove  far  more  attractive  than  it  is  commonly  sup- 
posed, and  is  yearly  attaining  a  higher  level.  There 
are  few  finer  types  of  character  in  business  life  than  that 
of  some  municipal  engineers  I  have  met  who  have  put 
in  twenty  years  or  more  in  service  for  the  community. 
The  call  is  for  a  new  reUgion,  or  a  new  etliics,  —  the 
service  of  all  for  all. 

If  the  engineer  is  deterred  from  public  service  by  the 
fact  that  he  often  cannot  show  as  low  labor  cost  for  unit 
of  work  done  as  in  private  business,  he  may  find  satis- 
faction in  other  facts.  He  will  find  that  he  will  be 
allowed  to  indulge  his  humanitarian  impulses  to  the 
extent  of  giving  some  a  chance  for  work  even  if  they 
have  reached  the  age  of  fifty,  and  have  passed  the  dead- 
line of  private  employment.  In  the  continued  labor  of 
such  men  society  is  certainly  interested. 

Also,  if  he  takes  a  broad  view  of  the  case,  he  will  be 
glad  to  have  his  men,  in  public  service,  work  but  the 
eight  hours  now  customary,  rather  than  the  nine  or  ten 
still  usual  in  private  work.  He  will  also  be  encouraged 
by  the  fact  that  there  will  be  no  water  in  the  stock  or 
bonds  issued  for  public  work,  and  that  if  he  is  managing 
a  public  water  or  lighting  or  street  railway  plant,  he  will 
not  be  expected  to  capitalize  the  franchise,  or  the  going 
value  or  payments  to  lobbyists  and  others  for  grants,  or 
the  rise  in  the  value  of  the  land  of  the  plant  since  its 
pm'chase,  or  even  the  increased  cost  of  duplication 
to-day  of  the  street  mains  and  conduits  by  virtue  of  the 
paving  put  down  at  city  expense  since  the  original  lay- 
ing of  these  mains  and  conduits. 


PUBLIC  SERVICE  127 

A  municipal  engineer  will  only  have  to  earn  interest 
and  depreciation  charges  on  the  actual  original  cost. 
If  by  reason  of  profits  in  excess  of  that  amount  the  rate 
is  reduced  or  new  construction  is  paid  for  out  of  earn- 
ings, the  capitalization,  on  which  interest  must  be  paid, 
is  proportionately  reduced.  He  will  feel  that  with  such 
advantages  in  his  favor  he  can  afford  to  treat  his  em- 
ployees in  a  considerate  manner,  while  insisting  upon 
efficiency,  and  still  accompHsh  as  much  for  the  taxpayer 
and  consumer  as  in  private  business,  unless  handicapped 
to  an  extreme  degree  by  bad  political  conditions.  He 
will  also  feel  that  his  success  in  the  management  of  such 
public  services  as  are  committed  to  liis  care  contributes 
to  the  success  of  democracy  and  increases  faith  in  popu- 
lar government,  so  that  even  if  his  name  is  not  remem- 
bered, he  will  feel  sine  he  is  conferring  a  permanent 
benefit  upon  those  who  come  after  him  and  upon  all 
who  wish  well  for  the  success  of  popular  government. 

I  have  often  wondered  why  the  man  who  delights  so 
much  in  dangerous  football  contests  in  college,  for  mere 
love  of  sport,  does  not  take  greater  enjoyment  after 
graduation,  in  the  civic  fights  which  are  awaiting  the 
willing  contestant  on  every  hand.  Why  is  there  not 
more  of  the  spirit  which  animated  a  leader  of  the  mi- 
nority in  the  last  Ohio  Legislatm-e?  After  some  interest- 
ing and  lively  contests  on  the  floor  of  the  House,  in 
the  vain  effort  to  secure  consideration  of  certain  bills, 
he  remarked  to  me,  "Of  course,  I  could  not  expect  to 
win,  but  I  love  the  fight."  Yet  it  is  such  a  spirit  that 
ultimately  does  win. 


128  PUBLIC   SERVICE 

"  You  are  beaten  to  earth?     Well,  well,  what's  that? 

Come  up  with  a  smiling  face. 
It's  nothing  against  you  to  fall  down  flat. 

But  to  lie  there  —  that's  disgrace. 
The  harder  you're  thrown,  why  the  higher  you  bounce, 

Be  proud  of  your  blackened  eye; 
It  isn't  the  fact  that  you're  licked  that  counts, 

It's  how  did  you  fight  —  and  why?  " 

And  truly  it  is  exhilarating  and  grand  to  fight  for 
good  government.  Before  long  it  may  even  become 
popular.    Will  you  not  help  make  it  so? 


CORPORATE  AND  OTHER  TRUSTS 

BY    JAMES    McKEEN 

It  is  bringing  coals  to  New  Castle  to  bring  to  New 
Haven  either  knowledge  or  wisdom  respecting  coriK)rate 
trusts.  At  the  very  outset  of  the  popular  agitation 
of  the  subject  a  score  of  years  ago,  no  public  utter- 
ances were  more  enlightening  than  those  of  President 
Hadley;  and  only  a  year  ago,  in  the  North  American 
Review,  in  an  article  on  the  "Ethics  of  Corporate  Manage- 
agement,"  he  has  treated  comprehensively  the  exact 
phase  of  the  topic  which  has  been  assigned  to  me  in 
this  course  of  lectures.  It  is  an  interesting  fact  that 
within  the  year  another  distinguished  college  president, 
Dr.  Woodrow  Wilson,  in  his  address  on  the  Fourth  of 
July  at  the  Jamestown  fair,  pointed  out  certain  funda- 
mental fallacies  m  the  legislative  treatment  of  the  trust 
problem.  I  shall  have  occasion  later  to  refer  to  Presi- 
dent Wilson's  views.  It  is  cause  for  congratulation 
that  these  two  presidents  of  these  two  very  old  Ameri- 
can colleges  are  among  the  leaders  of  thought  upon 
one  of  the  dominant  subjects  of  the  day.  It  is  measu- 
rably an  answer  to  the  very  common  criticism  that  in 
modern  progress  our  eastern  colleges  have  been  left 
lingering  in  the  cloisters  of  classicism. 

It  might  therefore  in  New  Haven  be  safe  to  assume 

129 


130    CORPORATE  AND  OTHER  TRUSTS 

that  there  is  sufficient  familiarity  with  the  nature  and 
development  of  what  are  called  corporate  trusts.  I  will, 
however,  venture  to  make  some  prehminary  statements 
as  to  what  these  corporate  combinations  are.  Com- 
binations in  restraint  of  trade,  and  combinations  leading 
to  monopoly,  are  by  no  means  new.  They  have  figured 
frequently  in  legal  history.  Later  on  some  references 
to  this  legal  history  and  to  the  rules  and  remedies  of  the 
common  law  will  become  pertinent.  I  am  now  asking 
attention  to  the  more  recent  and  wide-spread  combina- 
tions, which  have  come  to  be  known  as  corporate  trusts, 
or  merely  as  the  "Trusts."  We  must  have  in  inind 
what  a  corporation  is  before  considering  these  corporate 
combinations.  There  are  many  kinds  of  corporations, 
but  they  may  be  roughly  divided  into  public,  quasi- 
public,  and  private  corporations.  The  two  former  are 
either  governmental  agents,  such  as  municipal  corpora- 
tions; or  those  performing  certain  public  services,  such 
as  railroads.  In  order  to  perform  satisfactorily  these 
pubUc  services  the  corporations  often  require  and 
receive  privileges  and  franchises  of  very  great  value. 
The  private  corporation  usually  has  no  other  franchise 
than  simply  that  of  being  a  corporation.  This  has 
value  because  it  enables  a  number  of  persons  to  carry 
on  a  business  without  individual  liability  beyond  a 
prescribed  limit,  usually  their  respective  shares  in  the 
assets  of  the  corporation. 

The  word  "trusts"  is  a  misnomer.  It  seems  to  have 
been  applied  by  reason  of  the  fact  that  one  of  the  many 
methods  of  combination  has  been  for  the  majority  of 


CORPORATE  AND  OTHER  TRUSTS  131 

the  stockholders  in  several  different  corporations  to 
transfer  then-  stock  to  certain  individuals  who  thus 
manage  jointly  all  the  corporations.  These  individuals 
have  been  called  trustees,  and  they  are  in  fact  trustees 
for  the  transferring  stockholders,  to  whom  they  become 
accountable  for  the  proper  share  of  profits  in  the  con- 
duct of  the  businesses  combined.  But  the  combination 
itself  is  in  no  proper  sense  a  "trust."  The  name,  how- 
ever, has  become  too  firmly  fixed  in  popular  and  even  in 
legislative  language  to  be  changed.  And  it  has  gradu- 
ally been  extended  so  as  to  include  all  kinds  of  com- 
binations of  capital.  Very  many  of  the  popular  attacks 
on  the  trusts  are  attacks  upon  corporations  in  general, 
and  the  word  is  often  opprobriously  appUed  to  substan- 
tially all  vested  property  rights.  Another  common 
method  of  corporate  combination  is  by  the  system  of 
leasing  the  property  of  one  corporation  by  another. 
This  has  been  the  ordinary  method  of  railway  consolida- 
tions, and  was  in  vogue  long  prior  to  the  more  modern 
agitation  of  the  subject  of  trusts.  These  leases  have 
been  made  for  long  periods,  often  with  a  right  of  renewal. 
The  rental  usually  consists  of  a  yearly  sum  sufficient  to 
meet  a  guaranteed  dividend  on  the  stock  of  the  leased 
road.  Another  and  a  very  common  method  is  by  one 
corporation  becoming  the  holder  of  a  majority  of  stock 
of  other  corporations,  and  thereby  gaining  control  of 
them  without  the  intervention  of  any  trustees.  Still 
another  method  is  in  the  ingenious  device  of  a  so-called 
"holding  company."  A  corporation  is  formed  for  the 
sole  business  of  holding  stock  of  other  corporations. 


132  CORPORATE  AND  OTHER  TRUSTS 

The  holding  company  becomes  the  holder  of  a  majority 
of  the  stock  in  other  corporations,  and  thus  controls  all 
of  them.  Whoever  holds  a  majority  of  the  stock  of  the 
holding  company  controls  that  company,  and  thus 
controls  all  the  subordinate  companies.  It  will  be  seen 
that  one  person  may  control  the  entire  aggregate  prop- 
erty, while  really  .owning  much  less  than  half  of  it.  In 
my  opinion  this  device  and  the  practice  of  it  have  often 
furnished  reasons  for  condenmation  of  such  trusts. 
It  is  the  favorite  method  of  our  Napoleons  of  finance. 
It  is  so  important  that  I  venture  to  make  it  more  clear, 
by  illustration.  Suppose  the  case  of  a  company  with 
the  capital  of  a  milhon  dollars,  having  ten  thousand 
shares  of  one  hundred  dollars  each,  par  value.  The 
possession  of  five  thousand  and  one  shares  assures 
control  of  the  corporation.  The  holders  of  these  five 
thousand  and  one  shares  organize  a  holding  company, 
and  transfer  to  it  these  five  thousand  and  one  shares. 
They  of  course  in  organizing  the  holding  company 
become  the  owners  of  all  the  stock  in  that  company. 
They  can  then  sell  or  "unload"  all  but  a  controlhng 
interest  in  the  holding  company.  Supposing  the  hold- 
ing company  has  been  organized  with  a  capital  of  one 
hundred  thousand  dollars,  with  one  thousand  shares  at 
one  himdred  dollars  a  share  par  value.  The  real  value 
may  of  course  be  very  much  greater,  being  determined 
by  the  value  of  the  five  thousand  and  one  shares  in  the 
original  corporation.  It  makes  no  difference  what 
the  real  value  is.  The  point  is  that  the  promoters 
of  the  scheme  after  selling  four  hundred    and  ninety- 


CORPORATE  AND  OTHER  TRUSTS  133 

nine  shares  in  the  holding  company  will  still  control 
that  company.  Instead  of  limiting  the  operations  to 
the  control  of  one  business  corporation,  the  holding 
company  by  hke  methods  gains  control  of  many  other 
corporations.  In  the  existing  condition  of  the  statute 
law  in  some  of  our  states  there  is  notliing  to  prevent 
the  organizing  of  a  holding  company  for  the  purpose  of 
taking  and  holding  a  majority  of  the  stock  of  a  prior 
holding  company,  and  so  on,  so  that  a  man  with  a  real 
capital  of  say  ten  thousand  dollars  may  be  in  legal 
control  of  millions  of  dollars  of  corporate  assets.  It 
ought,  however,  to  be  said  that  in  practice  many  of 
the  holding  companies  have  been  resorted  to  merely 
for  convenience  of  administration,  and  with  no  ulterior 
purpose  of  wrongful  control. 

In  many  instances  the  trusts  have  been  evolved  by 
a  use  of  all  these  methods.  The  Standard  Oil  Company 
holds  in  a  central  control  by  all  sorts  of  separate  devices 
multitudes  of  originally  independent  corporations.  The 
Steel  Trust  is  itself  largely  a  combination  of  other  prior 
trusts. 

The  history  of  the  Sugar  Trust  is  interesting  more 
especially  as  illustrating  the  helplessness  of  the  state 
governments  in  attempts  to  check  the  growth  of  the 
trusts.  For  obvious  reasons  the  refineries  of  sugar  were 
on  the  seaboard,  since  most  of  the  raw  sugar  must  come 
from  abroad,  and  that  available  from  Louisiana  is 
more  cheaply  transported  by  water  than  by  land.  The 
greatest  of  these  refineries  were  in  Williamsburg,  the 
eastern  district  of  Brooklyn,   N.  Y.     Down   to  about 


134  CORPORATE  AND  OTHER  TRUSTS 

twenty  years  ago  these  were  carried  on  in  fierce  com- 
petition with  one  another.  Then  they  entered  into  a 
joint  agreement  to  pool  their  profits  and  to  divide  them 
in  agreed  proportions.  This  was  at  once  denounced  as 
a  conspiracy  to  enhance  the  price  of  a  necessary  of  life. 
The  state  of  New  York  through  the  Attorney  General 
brought  an  actioji  for  the  dissolution  of  the  combina- 
tion. And  the  Court  of  Appeals  sustained  a  judgment 
of  dissolution,  holding  that  the  agreement  was  in  effect 
a  partnership,  and  that  corporations  could  not  become 
partners.  Finding  their  compact  thus  severed  the 
owners  of  the  refineries  immediately  formed  a  single 
corporation  in  New  Jersey  to  which  they  conveyed  all 
the  property  of  their  several  refineries,  in  exchange  for 
stock  in  the  New  Jersey  corporation.  The  New  Jersey 
corporation  then  complied  with  some  technical  require- 
ments, to  enable  it  to  transact  business  in  New  York. 
And  the  business  went  on  precisely  as  it  had  gone  on 
under  the  dissolved  trust  agreement.  I  may  have  occa- 
sion later  to  refer  to  a  subsequent  experience  of  the 
Sugar  Trust  in  the  United  States  Courts. 

This  Sugar  Trust  next  after  the  Standard  Oil  chal- 
lenged wide  pubhc  attention.  Denunciation  of  it  was 
frequent  in  the  harangues  that  first  aroused  public  sen- 
timent against  the  trusts,  which  led  to  much  of  the  early 
legislation  on  the  subject.  In  spite,  however,  of  this 
legislation,  and  in  spite  of  the  continued  condemnation 
of  trusts  in  the  platforms  of  both  political  parties,  they 
have  gone  on  growing  year  by  year  until  we  now  find 
in  nearly  every  branch  of  industry  some  one  great  and 


CORPORATE  AND  OTHER  TRUSTvS  135 

dominant  corporation  or  combination  of  corporations 
controlling  and  monopolizing  the  production  and  sale. 

Besides  thus  calling  attention  to  the  methods  by 
which  these  combinations  have  been  created,  a  sketch 
of  the  subject  would  be  incomplete  without  more 
specific  reference  to  legislation  and  to  the  decisions 
of  the  courts.  As  before  mentioned,  English  legislation 
and  jurisprudence  abound  in  cases  where  the  control  of 
trade  movements  has  been  attempted.  The  English 
Parliament  has  repeatedly  enacted  statutes  which  now 
seem  extremely  whimsical.  In  the  time  of  Edward  the 
Third  the  plague  caused  such  a  diminution  in  the  number 
of  available  domestic  servants,  and  of  employees  gener- 
ally, that  there  ensued  a  great  rise  in  wages,  and  in 
prices  of  ordinary  staples.  In  an  effort  to  remedy  the 
evil  Parliament  made  it  a  misdemeanor  for  any  one  to 
refuse  to  work  at  the  old  rates,  or  for  any  huckster  to 
refuse  to  sell  at  the  old  prices.  These  particular 
statutes  proved  to  be  wholly  futile,  and  most  of  them 
were  repealed.  But  at  various  crises  similar  statutes 
were  passed.  Nearly  all  legislative  remedies  for  such 
evils  proved  to  be  worse  than  the  disease.  The  same 
was  found  to  be  true  of  most  of  the  legal  remedies  which 
the  common  law  evolved.  Many  of  these  common  law 
remedies  survived  the  repeal  of  the  statutes  on  the  sub- 
ject. Even  Blackstone  in  his  commentaries  denounces 
forestalling  and  engrossing  as  still  misdemeanors  at  the 
common  law,  although  the  prohibitory  statutes  on  the 
subject  had  been  repealed.  ForestalUng  was  the  buy- 
ing up  of  goods  on  their  way  to  a  market.     Engrossing 


136  CORPORATE  AND  OTHER  TRUSTS 

was  the  buying  of  goods  in  the  market,  not  for  con- 
sumption by  the  purchaser,  but  for  the  purpose  of  hold- 
ing them  for  a  future  sale.  The  prohibition  of  these 
practices  by  statute  and  by  judicial  decision  was  sup- 
posed to  be  in  the  interest  of  the  pubUe  as  enforcing 
lower  prices.  By  slow  degrees  it  has  come  to  be  com- 
prehended that  the  pubUc  is  made  up  of  people  that  are 
both  buyers  and  sellers.  The  man  who  is  a  buyer  to-day 
is  a  seller  to-morrow,  and  in  the  long  run  traffic  will 
regulate  itself  better  than  courts  and  legislatures  can 
regulate  it.  The  popular  uprising  against  the  trusts 
led  to  statutes  in  most  of  the  states  prohibiting  com- 
binations in  restraint  of  trade.  In  some  of  the  states, 
notably  in  IlUnois,  the  statutes  have  been  enforced 
with  a  considerable  degree  of  success.  As  a  rule,  how- 
ever, the  prosecutions  have  been  ineffectual.  The 
movement  having  taken  on  national  proportions  federal 
legislation  was  demanded.  And  under  the  interstate 
commerce  provision  of  the  constitution  the  famous 
Sherman  anti-trust  law  was  passed  in  1890,  which  pro- 
hibits, imder  severe  penalties,  combinations  in  restraint 
of  trade,  where  the  trade  restrained  is  interstate  com- 
merce. Time  Hmits  me  to  a  very  brief  reference  to  the 
decisions  under  the  statute.  The  Sugar  Trust  appears 
in  one  of  the  cases  which  went  to  the  United  States 
Supreme  Court,  That  trust  proceeded  to  absorb  the 
Philadelphia  refineries  after  the  Sherman  law  was 
passed,  and  it  was  prosecuted  for  so  doing.  The  Su- 
preme Court,  however,  held  that  the  mere  acquisition 
of  property  in  Pennsylvania  in  exchange  for  stock  in  a 


CORPORATE  AND  OTHER  TRUSTS  137 

New  Jersey  corporation,  even  though  the  property  pur- 
chased was  intended  to  be  used  for  refining  sugar,  which 
sugar  was  to  be  transported  for  sale  tlu-oughout  the 
United  States,  was  not  interstate  commerce.  And  that 
therefore  the  acquisition  of  the  four  refineries,  even 
though  the  mevitable  result  would  be  to  restrain  trade, 
was  not  a  prohibited  act  within  the  Sherman  Law. 
This  decision  was  also  made  upon  the  groimd  that  a 
manufacturing  monopoly  Avithin  a  state  is  not  remediable 
by  federal  legislation  even  though  it  may  be  reasonably 
certain  that  the  products  of  the  factory  are  intended  to 
be  subject  of  interstate  traffic.  One  of  the  most  in- 
teresting of  the  many  cases  mider  the  Sherman  law  is 
the  Northern  Securities  case.  Mr.  J.  J.  Hill  and  his 
friends  held  a  controlling  interest  in  the  Great  Northern 
Railway  Company,  and  Mr.  J.  P.  Morgan  and  his 
friends  a  controlling  interest  in  the  Northern  Pacific. 
These  two  roads  were  unquestionably  engaged  in  inter- 
state commerce,  and  were  unquestionably  competing 
lines.  The  two  parties  controlling  the  roads  came  to 
an  agreement  to  abandon  competition,  and  to  combine 
for  their  mutual  advantage.  In  order  to  carry  out  this 
agreement  they  formed  a  holding  company  under  the 
laws  of  New  Jersey,  to  which  they  transferred  the 
controlling  interest  in  both  roads.  The  Government 
brought  an  action  under  the  Sherman  Law  to  vacate 
this  transfer  of  stock  to  the  holding  company.  The 
Court  upheld  the  government's  contention.  It  was 
argued  that  the  railroads  were  not  within  the  intent  of 
the  Sherman  anti-trust  law,  they  being  already  regu- 


138  CORPORATE  AND  OTHER  TRUSTS 

lated  when  interstate  roads  by  the  act  creating  the 
interstate  commerce  commission.  The  United  States 
Supreme  Court  overruled  this  contention.  By  a  vote 
of  five  to  four  the  court  held  that  the  Sherman  anti- 
trust law  had  been  violated.  Four  of  the  justices 
expressed  the  opinion  that  the  statute  was  violated 
since  the  combination  was  in  restraint  of  interstate 
commerce.  Mr.  Justice  Brewer  expressed  the  opinion 
that  the  restraint  must  be  unreasonable,  but  he  held 
that  on  the  facts  shown  the  restraint  was  in  this  case 
unreasonable.  The  dissenting  justices  held  in  substance 
that  the  transfer  of  their  stock  by  individuals  to  the 
New  Jersey  corporation  was  in  this  case  not  essentially 
different  from  that  in  the  Sugar  Trust  case  where  the 
legality  of  such  transfer  had  been  sustained  by  the 
court.  The  effect  of  this  famous  decision  was  very 
much  like  that  in  the  case  of  the  New  York  dissolution 
of  the  Sugar  Trust.  The  stock  of  the  two  companies 
was  returned  by  the  holding  company  to  its  owners, 
who,  pursuant  to  a  sort  of  gentleman's  agi-eement,  have 
since  managed  the  two  roads  on  a  harmonious  plan. 
It  is  found  quite  impossible  for  either  legislatures  or 
courts  to  compel  two  competitors  to  go  on  cutting  each 
other's  throats  in  the  supposed  interest  of  the  public 
after  the  competitors  discover  that  peace  is  more  lucra- 
tive for  both  of  them. 

This  practical  failure  of  the  United  States  Govern- 
ment in  the  Northern  Securities  case  has  served  to 
stimulate  the  department  of  justice  into  a  series  of 
prosecutions  which  are  now  proceeding  before  the  cir- 


CORPORATE  AND  OTHER  TRUSTS  139 

cuit  courts  in  different  parts  of  the  country.  Four  of 
the  great  industrial  combinations  have  been  selected 
for  prosecution:  the  Tobacco  Trust,  the  Oil  Trust, 
the  Powder  Trust,  and  the  Harvester  Trust.  The  more 
advanced  of  these  cases  is  that  against  the  Tobacco 
Trust.  First  the  government  took  criminal  proceedings, 
including  the  officers  of  the  trust  as  defendants  with  the 
corporations.  The  curious  result  was  that  the  jury 
acquitted  the  officers,  while  finding  the  corporations 
guilty.  Next  the  government  filed  a  bill  in  equity 
making  parties  defendant  a  great  number  of  corporations 
and  individuals  that  make  up  the  Tobacco  Trust.  The 
testimony  has  been  taken  and  a  hearing  has  been  had. 
The  Couj't  is  asked  to  adjudge  the  trust  illegal  under  the 
Sherman  Law,  and,  if  necessary,  to  appoint  receivers 
to  wind  up  the  business.  Since  the  assets  exceed 
$400,000,000  it  is  easy  to  see  that  something  Hke  chaos 
will  ensue  if  the  government  succeeds. 

In  view  of  the  present  political  outlook  the  following 
extract  from  a  speech  delivered  at  Columbus,  Ohio, 
August  19,  1907,  by  Mr.  WiUiam  H.  Taft,  is  of  mterest. 
It  was  read  by  the  counsel  of  the  Tobacco  Trust  at  the 
recent  hearing  of  that  case.  It  shows  that  at  the  time 
of  its  delivery  Mr.  Taft  took  a  much  more  conservative 
view  than  is  now  taken  by  the  Department  of  Justice. 
He  seems  to  have  shared  the  opinions  of  the  dissenting 
justices  in  the  Supreme  Court  cases.     He  said :  — 

"I  conceive  that  it  ('monopoly'),  under  the  Sherman 
Law,  is  not  sufficiently  defined,  by  saying  that  it  is  the 
combination  of  a  large  part  of  the  plants  in  the  country 


140  CORPORATE  AND  OTHER  TRUSTS 

engaged  in  the  manufacture  of  a  particular  product  in 
one  corporation.  There  must  be  sometliing  more  than 
the  mere  union  of  capital  and  plants  before  the  law  is 
violated.  There  must  be  some  use  by  the  company  of 
the  comparatively  great  size  of  its  capital  and  plant, 
and  extent  of  its  output,  either  to  coerce  persons  to  buy 
of  it,  rather  than  of  a  competitor,  or  to  coerce  those 
who  would  compete  with  it  to  give  up  their  business. 
There  must,  in  other  words,  be  an  element  of  duress  in 
the  conduct  of  its  business  toward  the  customers  in  the 
trade  and  its  competitors  before  a  mere  aggregation  of 
plants  becomes  an  unlawful  monopoly." 

Added  to  these  prosecutions  of  the  industrial  trusts, 
and  relying  on  the  Northern  Securities  decision,  that  the 
railroads  are  within  the  scope  of  the  Sherman  law,  the 
government  has  followed  its  attack  upon  the  Harriman 
control  of  the  Union  Pacific  and  the  Southern  Pacific 
with  a  Uke  attack  upon  the  New  Haven  road  for  its 
alhance  with  competing  electric  roads  and  for  its  pro- 
posed merger  with  the  Boston  and  Maine.  In  view  of 
President  Mellen's  position  as  almost  the  only  railroad 
magnate  who  has  openly  defended  the  administration 
pohcy,  Wall  Street  people  now  have  their  ears  erect, 
listening  for  the  cry  from  him,  "et  tu,  Brute!" 

Our  purpose  to-day  is  to  inquire  about  the  ethical 
rather  than  the  economical  aspects  of  the  trusts.  The 
comprehensive  question  suggested  by  the  brief  review 
of  the  subject  is,  ''Have  the  pubhc  been  right  in  the 
almost  unanimous  condemnation  of  the  trusts,  and  in 
the  persistent  efforts  which  have  been  made  to  suppress 


CORPORATE   AND  OTHER  TRUSTS  141 

them?"  It  is,  I  think,  worthy  of  note  that  the  popular 
liostility  to  the  trusts  has  manifestly  been  diminishing. 
This  is  explicable  from  various  considerations,  some  of 
which  do  not  touch  the  merits  of  the  question.  One  is 
that  as  time  has  gone  on  a  larger  and  larger  proportion 
of  the  pubUc  are  enlisted  in  the  service  of  the  trusts. 
And  the  great  majority  of  those  so  enlisted  find  them- 
selves better  off  than  they  were  when  in  the  service  of 
smaller  and  competing  concerns.  This  is  true  not  only 
of  the  higher  grades  of  employees,  but  of  the  common 
laborers.  At  fu-st  the  trusts  were  denounced  as  the 
avowed  enemies  of  labor;  as  conspiracies  of  capital 
against  labor.  Denunciations  of  this  kind  have  not  been 
justified  by  the  facts.  Neither  has  experience  verified 
the  prediction  that  prices  of  the  products  of  the  indus- 
tries would  be  raised.  On  the  whole  a  general  convic- 
tion has  become  prevalent  that  the  average  consumer 
is  served  more  cheaply  than  before.  People  are  not 
divided  into  classes  consisting  of  producers  and  con- 
sumers. The  producer  to-day  is  a  consumer  to-morrow ; 
or  more  accurately,  the  average  man  all  the  while  is  a 
producer  of  some  things  and  a  consumer  of  others. 

An  interesting  mstance  showmg  the  change  in  public 
opinion  was  the  course  taken  by  the  American  Bar 
Association  at  its  meeting  at  Hot  Springs,  Va,,  in  the 
summer  of  1903.  The  standing  committee  on  com- 
mercial law  brought  in  a  report  severely  condemning 
the  trusts  and  suggesting  various  drastic  measures  for 
their  suppression.  The  report  was  drawn  and  pre- 
sented   by   gentlemen   of   high   professional   standing. 


142  CORPORATE  AND   OTHER  TRUSTS 

Ten  years  earlier  such  a  report  would  probably  have  been 
accepted  with  substantial  unanimity,  and  its  recommen- 
dations would  have  been  adopted.  But  in  1903  it  was 
received  with  outspoken  and  almost  violent  protesta- 
tion, and  was  practically  pigeon-holed. 

The  vehemence  of  the  opposition  to  the  trusts  has 
been  largely  predicated  upon  the  old  notion  that  they 
are  destructive  of  competition,  and  upon  belief  in  the 
soundness  of  the  economic  proverb  that  "competition 
is  the  Ufe  of  trade."  The  social  reformers  from  Charles 
Kingsley  to  Edward  Bellamy  have  been  denouncing 
competition  as  the  chief  source  of  misery  in  the  industrial 
classes.  They  have  urged  that  while  competition  may 
be  the  life  of  trade  it  is  death  to  the  competitors.  It 
used  to  be  said  that  the  proverb  was  very  good  in 
economics  but  indefensible  in  ethics.  Some  of  the 
recent  opponents  of  the  trusts  have  been  directly  re- 
versing this,  declaring  that  while  experience  may  have 
shown  that  the  trusts  are  a  good  thing  in  economics 
they  violate  all  principles  of  ethics! 

It  is  true  that  a  poUcy  may  be  economically  sound 
which  is  ethically  unsound,  but  such  cases  are  extremely 
rare.  Poverty  tests  virtue,  but  it  does  not  as  a  rule 
produce  it.  The  trusts  have  pros^^ered  from  the  fact 
that  while  measurably  destroying  competition  they 
have  effected  enormous  savings  in  cost.  These  savings 
have  not  been  savings  for  some  people  at  the  expense 
of  others,  but  savings  effected  by  stopping  what  had 
been  absolute  waste,  and  by  stopping  a  misdirection  of 
industrial  energy.    The  ethical  benefits  of  competition 


CORPORATE  AND  OTHER  TRUSTS  143 

have  been  to  a  considerable  extent  retained  by  the 
continuance  of  it  within  the  trusts  themselves.  The 
best  men  and  women  in  these  great  companies  are,  by 
a  process  of  competitive  selection,  pushed  up  into  con- 
trolling positions.  In  an  enUghtened  mind  a  sense  of 
fairness  replaces  the  desire  for  selfish  advantages  in- 
cident to  monopoly.  The  old  notion  that  every  trader 
will  exact  the  last  cent;  that  every  carrier  will  charge 
the  utmost  that  the  traffic  will  bear,  has  been  materially 
modified.  Assuming,  however,  that  the  trusts  are  wholly 
governed  by  selfishness,  it  is  as  a  rule  an  enUghtened 
selfishness.  In  our  system  of  law  monopoHes  are  sub- 
ject to  state  regulation.  The  consciousness  that  this 
is  a  rule  of  law  has  been  a  check  upon  undue  rapacity. 

Another  potent  reason  for  the  change  in  public  senti- 
ment is  that  since  the  hostihty  to  the  trusts  extended 
itself  so  as  to  include  all  corporations,  the  thrifty  people 
who  have  saved  something,  and  have  invested  then- 
savings,  find  that  their  mvestments  are  endangered.  A 
large  part  of  the  investments  of  the  savings  banks  are 
in  bonds  secured  by  mortgages  upon  the  assets  of  the 
trusts.  But  the  most  extraordinary  alhes  of  the  trusts, 
in  increasing  numbers,  are  the  sociaHsts.  The  social- 
ists were  at  first  the  fiercest  in  their  denunciations  of 
what  they  conceived  to  be  conspiracies  of  capital.  But 
they  now  discover  that  the  pro  tanto  destruction  of  com- 
petition has  been  in  the  line  of  their  own  favorite  doc- 
trine. And  they  say,  since  entire  industries  can  be 
wisely  conducted  by  vast  central  control,  why  not  go 
the  full  length  of  putting  all  industries  under  the  imme- 


144  CORPORATE   AND   OTHER  TRUSTS 

diate  central  control  of  the  government  itself,  and  thus 
realize  the  socialist  ideal  of  the  abolition  of  all  private 
property  and  of  all  individual  initiative?  The  labor 
unions  also  have  been  rudely  awakened  by  such  decisions 
of  the  courts  as  that  in  the  recent  Danbury  Hat  case, 
which  held,  that  boycotting  strikes  are  combinations 
in  restraint  of  trade,  equally  with  the  combinations  of 
capital,  and  that  such  strikes  are  equally  condemned 
by  the  Sherman  Law.  This  decision  of  course  followed 
numerous  common  law  precedents.  But  it  has  led  to 
violent  denunciation  of  the  Supreme  Court  by  the 
labor  leaders,  who  wish  all  anti-trust  legislation 
repealed  unless  their  own  unions  shall  be  made  exempt 
from  its  provisions. 

It  used  to  be  thought  that  the  regulating  power  of 
the  legislatures  over  corporations,  the  so-called  police 
power,  was  limited  to,  or  at  any  rate  should  be  advisedly 
employed  only  as  to  corporations  which  possessed  some 
distinguishing  pubUc  franchise;  that  is  to  say,  to  cor- 
porations which  are  known  as  pubhc  utility  corporations; 
and  should  not  be  extended  to  those  corporations  which 
possessed  no  franchise  except  that  of  being  a  corpora- 
tion, and  which  in  their  corporate  capacity  sought  and 
exercised  no  business  privileges  other  than  those  exer- 
cised by  individuals.  But  the  doctrine  is  now  preached, 
and  measurably  prevails,  that  inasmuch  as  every  cor- 
poration is  a  creature  of  legislation,  every  corporation 
is  therefore  subject  to  legislative  control.  Since  a  large 
part  of  the  business  of  the  country  is  now  done  by  cor- 
porations, under  the  above  theory  paternalism  has  been 


CORPORATE  AND  OTHER  TRUSTS  145 

progressiDg  by  leaps  and  bounds.  A  striking  illus- 
tration is  furnished  by  the  life  insurance  legislation. 
Although  the  hfe  insui'ance  business  is  important  and 
although  some  of  the  life  insurance  companies  are  very 
large,  they  do  not  perform  any  governmental  functions 
whatever.  They  are  in  no  sense  public  utility  corpora- 
tions. They  possess  no  pubUc  francliises.  It  has  come 
about  generally  that  only  corporations  do  the  insurance 
business.  But  I  am  unaware  of  any  inherent  reason, 
and  in  New  York  I  am  unaware  of  any  statutory  reason, 
why  the  business  cannot  be  conducted  by  individuals. 
In  England  originally,  and  to  a  great  extent  still,  the 
business  of  marine  insurance  is  conducted  by  individual 
underwriters.  The  primitive  way  was  for  a  sliip  owner 
to  post  at  Lloyd's  coffee  house  a  description  of  his 
vessel  and  of  the  voyage  she  was  about  to  undertake, 
and  a  statement  of  the  insurance  desired  and  of  the 
premium  offered.  The  underwriting  merchants  drop- 
ping in  would  write  under  this  proposal  the  sum  each 
would  insure.  And  this  became  a  contract  binding 
each  to  payment  of  a  proportionate  part  of  a  loss 
if  any  resulted.  There  is  no  inherent  reason  why  Mr, 
Carnegie,  for  example,  should  not  go  into  the  busi- 
ness of  insuring  lives.  He  might  have  to  satisfy  the 
insurance  officials  of  the  state  that  he  possesses  means 
sufficient  to  warrant  his  ultimate  fulfilment  of  liis  obli- 
gations. But  on  the  ground  that  this  business  is  con- 
ducted by  corporations,  the  legislature  assumes  the 
power  and  duty  of  imposing  all  manner  of  restrictions. 
This  course  has  apparent  judicial  sanction  in  an  opinion 


146  CORPORATE  AND  OTHER  TRUSTS 

of  the  Court  of  Appeals  of  New  York  some  years  ago  in 
the  case  of  the  People  vs.  Formosa.  The  legislature  had 
passed  a  law  making  it  a  misdemeanor  for  an  insurance 
agent  to  allow  any  part  of  his  commission  to  a  person 
taking  out  insurance.  Formosa  was  prosecuted  for 
violating  this  law.  He  defended  on  the  gi^ound  that 
the  commission  became  his  own  property,  and  he  could 
not  constitutionally  be  deprived  of  the  right  to  do  what 
he  pleased  with  it.  The  Court  held  the  law  to  be  con- 
stitutional. Unfortunately,  and  quite  mmecessarily, 
they  gave  among  the  reasons  for  sustaining  the  law, 
that  life  insurance  companies  being  creations  of  the 
legislature,  the  legislature  has  complete  control  over 
them,  and  over  the  acts  of  their  agents  in  the  conduct 
of  the  business.  Proceeding  upon  this  theory,  having 
this  high  judicial  sanction,  though  in  truth  an  obiter 
dictum  of  the  Court,  the  New  York  legislature  have 
passed  a  series  of  enactments,  followed  in  many  other 
states,  prescribing  in  minute  detail  the  methods  of  con- 
ducting the  business;  hampering  its  conduct  with  need- 
less restrictions;  imposing  drastic  penalties  for  trifling 
departures  from  the  prescribed  course  of  business,  and 
in  substance  taking  away  from  directors  and  officers  of 
these  corporations  many  of  their  former  powers,  and 
transferring  these  powers  to  state  officials.  If  this 
paternahstic  tendency  goes  on  we  will  soon  become 
subject  to  the  bureaucratic  conditions  of  many  of  the 
countries  of  continental  Europe.  No  doubt  the  legis- 
latures have  the  power  to  refuse  to  create  private 
corporations,  and  the  power  to  impose  the  terms  and 


CORPORATE  AND  OTHER  TRUSTS  147 

conditions  of  their  existence.  And  no  doubt  conditions 
should  be  imposed  which  will  assure  honest  management 
and  financial  stability,  but  once  created  under  such 
conditions  private  corporations  should  be  left  as  free 
as  individuals. 

In  this  rapid  review  of  the  development  of  modern 
trusts  it  has  perhaps  become  sufficiently  obvious  that 
these  trusts,  considered  as  corporate  entities,  are  not 
morally  censurable.  Wliether  or  not  anything  ethically 
objectionable  exists  in  the  working  of  the  system  de- 
pends upon  the  acts  of  individuals.  Corporations  have 
no  souls,  and  the  word  criminal  cannot  be  logically 
applied  to  corporate  acts.  True,  a  corporation  is  made 
to  respond  in  damages  in  civil  actions  for  the  harm  done 
wrongfully  by  its  agents  in  the  course  of  their  employ- 
ment. But  this  is  widely  different  from  punishment 
for  criminal  misconduct.  And  yet  so  furious  has  been 
the  popular  clamor  in  late  years,  that  we  find  legisla- 
tures and  courts  treating  the  corporations  themselves 
as  misdemeanants,  and  punishing  them  by  immense 
fines,  the  burden  of  which  falls  upon  the  innocent  mem- 
bers of  the  corporation  just  as  heavily  as  upon  the 
guilty.  It  is  in  the  clear  elucidation  of  this  fallacy 
that  President  Woodrow  Wilson  has  rendered  conspicu- 
ous service.  The  fallacy  has  been  often  pointed  out  by 
others,  but  by  none  so  effectually  as  by  him,  in  his 
Jamestown  address  to  which  I  have  referred.  He  points 
out  that  the  particular  things  in  corporate  management 
which  excite  moral  condemnation  must  be  due  to  the 
misconduct  of  individuals.    If  there  be  conspiracy,  con- 


148  CORPORATE  AND  OTHER  TRUSTS 

demned  as  a  wrongful  corporate  conspiracy,  the  con- 
spirators must  be  certain  discoverable  individuals. 
Hence  the  aim  of  remedial  legislation  and  of  remedial 
judicial  action  should  be  to  detect  and  punish  the 
persons  who  have  acted  wrongfully.  It  follows  that  in 
corporation  management,  as  in  most  other  kinds  of 
business  activity,  there  vnW  rarely  be  cause  for  com- 
plaint if  the  conduct  of  the  men  responsible  for  what 
is  done  is  in  pursuance  of  the  dictates  of  an  enlightened 
conscience.  Corporations,  instead  of  being  the  natural 
agents  of  predatory  wealth,  are  the  natural  instruments 
whereby  a  multitude  of  people  of  moderate  means  are 
enabled  to  combine,  and  thus  to  compete  with  men  of 
great  individual  wealth  whose  selfish  inclinations  some- 
times make  them  predatory.  You,  young  gentlemen, 
as  graduates  of  this  splendid  scientific  school,  will 
naturally  seek  and  find  employment  in  the  great  busi- 
ness corporations  of  the  country.  You  may  enter  upon 
such  service  without  hesitation  and  in  the  assurance 
that  the  trusts  will  not  be  harmful  to  you,  and  will 
cease  to  cause  apprehension  to  the  public,  if  you  carry 
fearlessly  into  their  service  these  principles  of  right 
conduct  which  you  have  here  been  individually  taught. 


SYLLABI   OF  LECTURES 


LECTURE  I 

"The  Morals  of  Trade  in  the  Making" 
by  edward  d.  page 

Syllabus 
Conditions  of  the  discussion  (page  1). 

(1)  A  clear  conception  of  the  questions  involved. 

(2)  Correct  understanding  of  the  terms  involved. 

(3)  Freedom  from  prejudice  or  bias. 

Questions  at  issue  (page  1). 

(1)  Foundations  of  general  impressions  of  dishonesty  in  business. 

(2)  Are  immoral  practices  common? 

(3)  What  are  their  causes? 

(4)  The  ethical  principal  and  its  guidance. 

Definitions  (page  2). 

Business  —  human  acti\nty  with  respect  to  the  exchange  of  ser- 
vices, commodities  or  money. 

MoRALiTT  —  the  rule  of  right  conduct  commonly  accepted  by 
social  sentiment  expressed  by  its  acknowledged  leaders. 

Ethics  —  the  body  of  principle  on  which  morality  is  based. 

Honesty  —  conduct  in  business  transactions  in  conformity  with 
the  conventional  standards  of  duty  set  by  social  sentiment. 

Honor  —  principles  of  action  in  conformity  with  the  highest  stand- 
ards of  duty. 

Law  —  a  rule  of  action  established  by  recognized  authority  to 
enforce  justice  and  to  direct  duty. 

Society  —  the  collective  body  of  persons  composing  a  community. 

The  biases  (pages  5-7). 

(1)  Professional. 

(2)  Of  Journalism. 

(3)  Of  anti-social  corporate  conduct. 

151 


152  LECTURE  I 

Characteristics  of  morality  (pages  8-10). 

(1)  Formed  by  social  sentiment. 

(2)  Subject  to  change  and  progress. 

(3)  Its  growth  a  phase  of  evolution. 

Unequal  evolution  of  economic  and  moral  development 
(pages  10-13). 

(1)  Through  the -sudden  development  of  modern  business. 

(2)  Through  popular  absorption  in  money-getting. 

(3)  Through  the  inadequate  development  of  the  law. 

(4)  Opportunity  afforded  to  the  business  anarchist. 

Phases  of  the  evolution  of  conduct-standards  (pages   13- 
14). 

(1)  From  honor. 

(2)  Through  honesty. 

(3)  Finally  ending  with  law. 

(4)  Devolution  phase  of  law  and  its  attendant  moral  confusion. 

Differing  degrees  of  intensity  of  moral  obligation  towards 
social  classes  (pages  14-15). 

(1)  The  family  —  relation  of  friendship. 

(2)  The  tribe  —  relation  of  acquaintance. 

(3)  The  stranger  —  public  relation. 

(a)  Government  a  stranger. 

Application  of  the  phases  of  conduct  standards  to  social 
classes  (page  16). 

(1)  Of  Honor  toward  the  Family  or  friend. 

(2)  Of  Honesty  toward  the  Tribe  —  or  acquaintance. 

(3)  Of  Law  to  the  Stranger  —  or  public. 

Effect    of    evolution    of    economic    development    (pages 
16-17). 

(1)  In  transmitting  conduct-standards. 

(2)  In  transferring  social  classes. 


LECTURE  II  153 

Business  success  (page  18). 

(1)  Not  measured  by  acquisition  of  wealth. 

(2)  Equally  dependent  on  the  establishment  of  character. 

(3)  —  and  the  development  of  ability. 

Morality  in  the  conduct  of  business  (page  19). 

(1)  Immorality  the  result  of  unequal  evolution. 

(2)  Standardization  of  business  morality  encouraged  by  economic 

development, 
(a)  Affording  the  opportunity  for  dishonest  trading. 

Golden  rule  the  basic  idea  of  duty  (page  19). 
Duty  of  educated  men  as  leaders  of  society  (pages  20- 
22). 

(1)  In  developing  moral  principle  by  discussion. 

(2)  In  reprobating  anti-social  conduct. 

(3)  Commendation  of  social  service  equally  important. 

(4)  Extension  of  the  ideals  of  Honor. 

(5)  —  and  of  the  brotherhood  of  mankind. 


LECTURE  II 

"  Production  " 
by  george  w.  alger 
Syllabus 
The  producer  and  his  employees  (pages  25-28). 

(1)  Apparent  simplicity  of  ethical  principles  involved. 

(2)  Elements  of  employer's  duty. 

(3)  The  nature  and  extent  of  individual  responsibility  of  employer. 

(4)  The  practical  limitations  of  individual  power  of  the  just  em- 

ployer. 


154  LECTURE  II 

Methods  of  promoting  industrial  justice  (pages  29-39). 

(1)  Quickening   the   moral   sense  of   the   employer,   directly   and 

through  public  opinion. 

(2)  Organization  of  employees. 

(3)  Enactment  of  law;  current  objections  to  such  law. 

(a)  Socialism. 

(6)  Cannot  make  men  good  by  legislation. 

(c)  Meddlesome  legislation  of  ancient  times  a  failure. 

(4)  The  modern  conception  of  the  proper  scope  of  industrial  legis- 

lation. Disadvantages  of  industrial  anarchy.  Progress 
made  towards  greater  industrial  justice.  Encouraging  fea- 
tures of  attitude  of  employers  towards  employees.  Handi- 
cap on  American  employers  through  absence  of  law. 

(5)  Industrial  accidents.     European  accidents  burden  upon  indus- 

try.    In  America,  burden  upon  crippled  employee. 

The  producer,  the  trade  and  the  public  (pages  39-^0). 

(1)  Business  trickery  and  the  new  law. 

(2)  Pure  food  bills. 

(3)  Patent  medicines. 

(4)  Trade  openings  through  burglar  methods. 

(5)  Bribing  commissions  to  purchaser,   agents,   and  buyers.     The 

growth  of  such  practices  and  their  causes. 

(6)  Development  and  abuse  of  trusteeship  in  commercial  and  finan- 

cial life. 

(7)  Loose    laws    and    the    tempting    opportunities    for    essentially 

criminal  profits.  Effect  of  bad  example  of  magnates  oa 
clerks  and  employees  and  on  business  morals  generally. 

(8)  Reasons  for  optimism. 

Increasing  stability  of  business. 

Development  of  good-will. 

Good-will  and  advertising. 

The  name  of  the  house. 

Influence  of  high-class  retailer  on  producer. 


LECTURE   III 

"  Competition  " 

by  henry  holt 

Syllabus 

Questions  of  the  capital-trusts  and  the  labor-trusts  at 
bottom  questions  of  competition  (page  47). 

Excessive  competition  specially  characteristic  of  America 
(pages  47-49). 

Competition  tends  to  vary  with  democracy  (pages  47-49). 

(1)  Illustrated  by  comparing  America  with  England. 

(2)  Attractions  of  wealth  tempered  there  by  counter  attractions 

of  pyolitics,  rank,  "  place  "  in  state  and  church,  and  old  and 
wide  culture. 

(3)  Here,   theoretic   equality   tempts    to    competition   for    actual 

equality,    in   the    only   generally-recognized    chief    good  — 
wealth. 

(4)  Diffusion  of  education  makes  large  numbers  able  to  compete. 

(5)  And  does  not  do  as  much  as  could  be  wished  to  temper  the 

competition. 

People  disapprove  competition  in  what  they  sell,  and 
approve  it  in  what  they  buy  (page  49). 

Nearly  every  industry,  even  the  professions,  combined 
against  competition  (pages  49-50). 

Foolish  overestimate  of  evils  of  competition  and  reme- 
dies for  them  (page  51). 

SUMMARY   OF   EVOLUTION   OF   COMPETITION   (pages  52-54). 

(1)  Competition  ingrained  in  Nature. 

(2)  At  first  physical. 

(3)  Later  intellectual. 

(4)  Later  tempered  by  justice,  mercy  and  S5'mpathy  —  sometimes 

to  excess. 

155 


156  LECTURE   III 

(5)    Also  tempered  by  monopoly,  natural  and  artificial  —  also  to 
excess,  requiring  regulation. 

Cessation  of  competition  means  cessation  of  industry 
(page  54). 

SOME    DETAILS    OF    FOREGOING    SUMMARY 

Advantages  of  competition,  in  brief  (pages  54—59). 

(1)  Inherent  even  in  the  most  altruistic  industries. 

(2)  When  suppressed  in  one  way,  apt  to  crop  out  in  another. 

(3)  Illustrated    in    attempts    to    keep    prices    at   one    level  —  for 

example  by  the  steel  trust. 

(4)  Arguments  for  and  against  that  attempt. 

(5)  Universality  and    irrepre.ssibility  of    competition    emphasize 

presumption  of  its  usefulness. 

(6)  Stimulates  effort,  cheapness,  quality,   invention,   advertising, 

drumming  and  facilities  of  travel;  and  eliminates   ineffec- 
tive management. 

Disadvantages  of  excessive  competition  (pages  59-61). 

(1)  Sometimes  eliminates  effective  management. 

(2)  Tends  to  depreciate  quality,  make  prices  wastefully  low,  and 

overdo  advertising  and  drumming. 

(3)  Costs  more  to  advertise  and  "  drum  "  soap,  for  instance,  and 

elementary  school-books  than  articles  themselves  cost. 

(4)  Illustrated  in  book  trade. 

Competition,  though  incidental  to  prudent  production 
and  merchandizing,  when  extravagant  becomes 
aggressive  (pages  61-62). 

(1)  Especially  when  directed  against  an  individual. 

(2)  Provokes  self-defence,  counter  aggression,  industrial  war. 

(3)  Non-resistance-ideal  ethics. 

(4)  Conflict  between  ideal  and  practical  ethics. 

Normal,  inevitable,  and  incidental  competition  becomes 
abnormal,  forced,  and  aggressive  when  it  drives  profits 
below  average  (pages  62-63). 


LECTURE   III  157 

(1)  Profits  to  be  estimated  not  in  money  alone,  but  in  all  satis- 

factions —  honor,  congeniality,  etc. 

(2)  Tendency  of  satisfactions  in  all  pursuits  to  become  equal. 

(3)  Equality  of  fortunes,  thus  estimated,  desirable. 

(4)  Only  attainable  through  development  of  the  individual. 

Development  of  the  individual  attainable  only  through 
normal  competition  (page  63). 

(1)  Effects  of  excessive  competition  on  character. 

(2)  Illustrations. 

(3)  Sometimes  wiser  and  braver  not  to  compete,  as  it  is  not  to 

fight. 

POSSIBILITY  OF  COOPERATION    REPLACING  COMPETITION 

(pages  63-68) 

(1)  Illustrated  in  the  publishing  business. 

(2)  Illustrated  in  the  professional  world. 

(3)  Illustrated  in  the  trusts. 

Difficulties  regarding  the  trusts  (pages  68-70). 

(1)  Those  difficulties  apt  to  yield  to  regulation. 

(2)  Crudity  of  our  necessarily  inexperienced  attempts  at  regulation. 

(3)  Illustrated  in  the  retail  book  trade. 

(4)  Illu.strated  in  the  pure-food  law. 

(5)  Illustrated  in  the  labor  trust. 

The  non-competitive  Utopia  (pages  71-73). 

(1)  Dangers  of  speculating  far  beyond  experience. 

(2)  Paradoxical  character  of  all  Utopias. 

(3)  A  few  rosy  dreams  of  general  wealth  and  leisure. 

(4)  Normal   competition  at  least  in  the   direction  of   their    reali- 

zation: and  excessive  competition,  in  the  opposite  direction. 


LECTURE   IV 

"Credit  and  Banking" 

by  a.  barton  hepburn 

Syllabus 

Unfortunate  differentiation  between  private  and  public 
morals  (page  74). 

(1)  As  seen  in  public  business. 

(2)  As  seen  in  corporate  affairs. 

Principles  and  science  of  banking  (pages  75-76). 

(1)  Custom  governs  banking  principles. 

(2)  Principles  change  with  change  of  custom. 

(3)  Ethical  principles  cannot  change. 

(4)  Necessary  characteristics  for  a  banker. 

Credit  and  character  in  commerce  (pages  76-82). 

(1)  Commercial  banking  and  its  responsibilities. 

(a)  Its  coixfidential  character. 

(b)  Its  proper  risks. 

(2)  Fiduciary  functions  of  a  banker. 

(o)  In  his  relations  to  the  individual. 
(6)  In  his  relations  to  the  state. 

(3)  Concrete  duties  of  commercial  banking. 

Other  types  of  banking  (pages  83-86). 

(1)  Savings  banks. 

(2)  Trust  companies. 

(3)  Banking  houses. 

(a)  Underwriting  syndicates  and  promoters. 

(1)  Origin  of  the  syndicate  system. 

(2)  Promoters  and  the  credit  due  to  them. 

(3)  Necessity  for  both  syndicates  and  promoters. 

(4)  Mortgage  banks. 

(5)  Dependence  of  all  on  commercial  banks. 

(a)  Importance  to  the  latter  of  liquid  assets. 
158 


LECTURE    IV  159 

Unsound  banking  (pages  87-90). 

(1)  The  impropriety  of  loans  made  to  a  bank's  own  ofificers. 

(2)  Impropriety  of  commercial  banks  investing  in  stocks. 

(3)  Commercial   banks   may  buy  bonds  and   participate  in  bond 

syndicates  within  due  limits. 

(4)  What  a  bank  may  not  do  in  underwriting  syndicates  its  officers 

should  not  do. 
(a)  The    dangerous    character    of    many    promotions    and 
syndicates,  financially  and  morally. 

(5)  Failure  of  law  to  punish  wrongful  promotions. 

Morale  of  a  bank's  working  force  (pages  90-91). 

(1)  EflBciency  dependent  upon  individual  honesty. 

(2)  Character  a  controlling  influence  in  selecting  a  working  force. 

(3)  Character  a  final  test  in  a  bank's  clientele. 

(4)  A  paternal  influence  should  be  exercised  over  the  clerical  force. 

Instances  of  dereliction  (pages  91-94). 

(1)  The  wrong  of  settling   with  swindlers  instead  of  prosecuting 

them. 

(2)  Need  of  public  demand  that  men  should  be  financially  and 

criminally  responsible  for  all  statements  in  advertisements 
and  circulars. 

The  trusteeship  of  banking  resources  (pages  94-95). 

(1)  National  banks  are  eminently  public  institutions. 

(2)  Fiduciary  relations  to  the  public  are  of  the  highest  character 

and  should  be  judged  by  the  highest  standards. 

(3)  Public    should    differentiate    carefully    between    commercial 

banking   and   busine.ss   enterprises  conducted   by  so-called 
"  bankers." 

Lessons  of  the  crisis  of  1907  (pages  95-101). 

(1)  Depositors  should  be  able  to  withdraw  their  funds  at  any  time 

in  any  form. 

(2)  Defects  of  our  currency  system. 

(3)  Inadequate    currency    laws    demoralize    credit    and    humiliate 

commerce. 

(4)  A  comparison  with  Germany. 

(5)  Need  of  new  currency  legislation. 


LECTURE   V 

"  Public  Service  " 

by  edward  w.  bemis 

Syllabus 

Meaning  and  importance  of  public  service  (page  102). 
Reasons  for  the  growth  of  such  service  (page  104). 
Prospects  for  further  growth  (page  105). 
The  ethical  side  of  the  problem  (pages  105-108). 
Administration  —  its    growing    importance    and    present 
weakness  (pages  108-112). 

(1)  The  Spoils  System  and  inefficiency. 

(2)  Award  of  contracts. 

(3)  Inspection. 

(4)  Engineering. 

(5)  Financiering. 

Remedies  (pages  112-113). 

(1)  Public  Opinion. 

(2)  Publicity  and  audit. 

(3)  The  Federal  Plan. 

Public  service  in  council    and    legislature    (pages    113- 
117). 

(1)  Need  of  more  courage  and  patriotism, 

(2)  Home  rule. 

(3)  Direct  primaries. 

(4)  Smaller  bodies,  more  pay  and  one  chamber. 

(5)  The  recaU. 

(6)  Direct  legislation. 

(7)  Questioning  of  candidates. 

Influence   of    the    "Big    Interests"    or   "The  System" 
(pages  117-119). 

160 


LECTURE    VI  161 

Attacks  on  special  privilege  through  public  opinion, 
taxation,  regulation  and  ownership  (pages  119-122). 

Conditions  for  highly  successful  municipal  operation 
(page  122). 

(1)  A  well-paid  manager  with  full  responsibility,  and  holding  his 

office  during  good  behavior. 

(2)  Exclusion  of  political  influence  and  personal  favoritism. 

(3)  Separation  of  the  finances  of  the  undertaking  from  those  of 

the  rest  of  the  city. 

(4)  Exemption  from  the  debt  limit  of  the  necessary  bond  issues  for 

revenue-producing  utilities.     Said  bonds  and  interest  thereon 
to  be  a  charge  upon  the  revenues  of  such  undertakings. 

The  new  ethics  of  social  service  (pages  122-127). 
The  pleasures  of  public  work  (pages    127-128). 


LECTURE   VI 

"  Corporate  and  Other  Trusts  " 

by  james  mckeen 

Syllabus 

Introduction  —  Academic    interest    in    corporate    ethics 
(page  129). 

(1)  President  Hadley's  article. 

(2)  Address  by  President  Woodrow  Wilson. 

Defining   trusts,    corporations,    combinations,    franchises 
(pages  130-131). 

(1)  Three  kinds  of  corporation. 

(2)  Nature  of  franchises. 

(3)  Origin  of  word  "trust"  as  applied  to  combinations  of  capital. 

(4)  Use  of  word  "trust"  a  misnomer.     Now  applied  to  all  forms 

of  centralized  control. 


162  LECTURE   VI 

Brief  history  and  description  of  trusts  as  affected  by- 
legislation.  The  Sherman  anti-trust  law  (pages  131- 
140). 

(1)  The  Standard  Oil  trust. 

(2)  The  Steel  trust. 

(3)  The  Sugar  trust. 

(4)  The  Northern  Securities  trust. 
(5>  The  Tobacco  trust. 

(6)  The  Powder  trust. 

(7)  The  Harvester  trust. 

PubHc  condemnation  of  trusts  (pages  140-141). 

(1)  Condemnation  by  labor  interests. 

(2)  Condemnation  by  consumer. 

(3)  Condemnation  in  1903  by  comnnittee  of  American  Bar  Asso- 

ciation. 

(4)  Early  legislative  attempts  to  regulate  prices. 

(a)  Statutes  in  reign  of  Edward  III. 

(fe)  Engrossing  and  forestalling. 

(c)  Crimes  at  conunon  law  irrespective  of  statutes. 

Change  of  public  sentiment  (pages  141-142). 

(1)  Repeal  of  early  English  statutes. 

(2)  People  not  divided  into  classes  of  producers  and  consumers. 

(3)  Economical  advantages  of  combination  appreciated. 

(4)  Socialists  denounce  competition. 

(5)  Labor  interests  opposed  to  Sherman  anti-trust  law,  aa  applied 

to  combinations  of  labor, 
(a)   Danbury  Hat  Case. 

(6)  Comj)etition  between  individuals  within  the  trusts. 

Tyrannical  abuse  of  legislative  power  as  regards  corpora- 
tions. 

(1)  Distinction  between  corporation  and  partnership  or  individual. 

(a)   Legislative  interference  with  insurance  companies. 
(&)   Legislation  approximating  paternalism. 

(2)  Corf)orations  under  criminal  law.     Aim  should  be  to  discover 

individual  transgressors. 

(o)   No   danger  from  trusts  if  members   and  managers   be 
controlled  by  high  ethical  standards. 


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